Regulation T and Initial Margin Requirements: How to interpret the 50%?

Question

I wanted to understand initial margin requirements in the Federal Reserve's Regulation T section of the code. I read an article in Investopedia on Regulation T requirements, but I still feel uneasy with the concept. Here is a quote as to the meaning of the rule, also taken from Investopedia,

According to Regulation T, you may borrow up to 50% of the purchase price of securities that can be purchased on margin. This is known as the initial margin.

So, if I have a margin account with a nonzero debit balance (i.e. I'm borrowing some money from the brokerage firm), I can continue to purchase stocks until the market value of assets in the account is twice the debit balance of the account, according to the initial margin requirements in Regulation T. Is this a valid interpretation of the rule? I think the source of my confusion stems from the 50% that appears in the rule. If I were to attempt to purchase stocks whose market value plus the market value of positions in the account exceeds twice the debit balance, this would be a violation of the initial margin requirements in Regulation T. Is this correct?

Answer 1

Yes, Regulation T is specified as the equity percentage of assets.

So, yes, one can buy double the amount of equity in initial buying power but no more. A broker shouldn't even permit purchases that would violate margin regulation.

Maintenance margin is at 25%, so equity must remain above 25% of the total or the brokerage will force liquidations.