October 2015: A Review of Margin Lending

This Broker Monitor Report offers an overview of margin lending programs provided by brokerage firms in our coverage group. We outline general margin availability and rates for each firm, the base lending rate, and rates by balance tiers, all current as of October 2015. We also look at the restrictions and requirements that each firm places on the use of margin and how clients can access their margin funds. Corporate Insight last reviewed margin lending programs in 2012.

All Broker Monitor firms offer margin trading and lending capabilities in some capacity. Some firms offer margin trading as a standalone entity while others include it automatically within brokerage accounts. Because margin accounts are heavily regulated by FINRA and other regulators, margin borrowing features are generally standard across all firms. However, while FINRA provides the floor for margin balance and maintenance requirements, firms are free to impose their own higher minimums. Though the vast majority of firms adhere to the Fed’s $2,000 minimum equity requirement, one firm more than doubles that requirement to a minimum of $5,000 in equity needed to use margin.

Brokerage firms are able to set their own internal base rates depending on market conditions and prevailing commercial interest rates. Given that flexibility, there is significant variation within the Broker Monitor coverage group over what margin rates are charged to clients based on their outstanding margin balances. At the lowest outstanding balance tier, the average margin rate for the 17 competitors reviewed for this report is approximately 8.329%. Ten of the 17 firms reviewed charge a higher rate than this average.

At the other end of the spectrum, firms vary regarding the outstanding balance at which they institute their lowest margin rate. The most common balance breakpoint was at $1 million, with seven firms offering their lowest margin rate on balances of $1 million or more. Three firms offer the lowest balance tier before implementing their lowest margin rates at $500,000. One firm offers the lowest margin rate reviewed at a diminutive 2.625%. There is little consistency regarding how brokerages structure their margin balance tiers and the rates they charge their clients.

Additional key findings include:

  • Two firms utilize 10 separate margin rate tiers
  • The highest margin rate charged was 9.875%
  • The lowest initial margin rate was 6.00%