House Maintenance Requirement

House Maintenance Requirement: What it Is and How It Works

A house maintenance requirement is the minimum equity a brokerage firm requires in a margin account after a purchase. It’s set by individual brokerages but must meet or exceed the legal minimum established by Regulation T of the Federal Reserve.

Key points

• Regulation T sets the legal minimum maintenance margin at 25% of the market value of securities in a margin account.
• Brokerages typically set “house” maintenance requirements higher — often in the 30%–50% range.
• Requirements can vary by client profile (size, creditworthiness, sophistication) and by security type (volatile or illiquid securities usually require higher equity).
• If account equity falls below the maintenance requirement, the broker can issue a margin call and may liquidate positions if the client does not provide additional collateral.

How It Works

Maintenance requirements protect brokers (and the broader financial system) from credit risk caused by leveraged positions. When you buy on margin, you borrow from the broker and must keep a minimum percentage of the investment’s market value as equity.

If the value of the securities declines and your equity falls below the required level:
1. The broker issues a margin call requiring immediate deposit of funds or securities.
2. If you fail to meet the call, the broker can sell (liquidate) holdings to restore the required equity. Any remaining loan balance remains your responsibility.

Why Maintenance Requirements Matter

During rising markets, leverage can amplify returns, but in falling markets it magnifies losses. Higher maintenance requirements limit excessive leverage and reduce the chance that a broker (or many brokers at once) will face large investor defaults that could create systemic stress.

Factors That Influence House Maintenance Requirements

• Client profile: Smaller or less-experienced clients often face higher requirements; large or sophisticated clients may receive lower thresholds.
• Security type: Small-cap, volatile, or less-liquid securities generally carry higher requirements than stable, large-cap stocks or bonds.
• Market conditions: In volatile or stressed markets, brokers may tighten requirements to manage risk.

Examples and Common Questions

What does a 30% requirement mean?
You must maintain equity equal to 30% of the current market value of your securities. If the securities are worth $20,000, the required equity is $6,000.

What is a special maintenance requirement?
Some securities or accounts are assigned higher-than-normal maintenance percentages because they’re considered riskier or less liquid.

What happens if I don’t meet a margin call?
The broker can sell your securities without your consent to bring the account back to the required level; you remain liable for any shortfall.

Bottom Line

House maintenance requirements set the minimum equity you must keep in a margin account to borrow from a broker. Although Regulation T requires at least 25% equity, most brokers require more to manage risk. Understand your brokerage’s specific maintenance rules and monitor margin positions closely — failure to meet requirements can trigger margin calls and forced liquidations.