Most stocks that are bought and sold are listed on a stock exchange. But stock exchanges don’t just take any old stock. Just because you want to offer stock from your recycled chewing-gum start-up company, for example, on a particular exchange, doesn’t mean you should strut down Main Street wearing a fur coat and handing out Susan B. Anthony coins to street urchins while bragging about a stock listing. That’s because each exchange has an admission board that determines whether a particular stock should be listed on their exchange.
Much like a college admission board that requires a minimum grade point average, minimum test scores, and the ability to not offend millions of people on Twitter on a bi-weekly basis, a stock exchange admission board establishes standards for admission to its exchange and requires companies to submit financial statements, prospectuses, and other stock-exchangy type stuff.
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Finance: What is Reg T?3 Views
Finance allah shmoop what is wreg tea or regulation T
so you probably remember all those horror stories of clueless
investors borrowing more than usual fifty percent maximum margin to
either buy more securities or just you know to buy
stuff Well not shockingly This was a big problem in
the unregulated world before the various securities acts went into
power in the nineteen thirties in nineteen forties will rig
he basically covers the foreman manner in which brokers or
brokerages can extend credit to their customers Credit that's where
the tea's coming from or how you remember it That
is in most cases for normal retail investors the maximum
amount they can borrow courtesy of the kindly loving caretaking
people at wreg tea and think of that t is
you know training wheels How about that to remember Well
that maximum margin fifty percent So who hates this law
Who loves this law Well if you think about the
dynamics of a brokerage they are the casino the house
the matron They don't like to take a lot of
risk and they don't like having clients go bankrupt playing
in their casino but undoubtedly they have clients who dio
so think about situation where joe roles big dice borrows
right up to the limit of fifty percent margin And
things go well any borrows more And then he borrows
more continuing his practice of being right up to the
limit of fifty per cent limit all the time Things
were good for a while from a margin account Joe's
allowed to buy anything legal that he can buy like
mohr securities are taken by that shiny new convertible portia
Well let's look at his account here Shows in his
margin County has three hundred grand He's borrowed one hundred
grand to buy more stocks And since his margin limit
at fifty percent leaves him head room for well only
fifty grand mohr Who Well he just had to have
that portia But unfortunately with only fifty grand to spend
he was limited to buying the nine year old one
with a dent in it And that you know that
fish smell that will never go away But it was
fifty grand Joe bought it So joe is all in
now Just kissing his maximum margin Borrowing capacity of one
hundred fifty grand against three hundred thousand dollars in equity
Value in his account Well guess what As things tend
to do in shmoop video one day north korea gets
moody And while nuclear things happen and the market takes
a huge dr strangelove ending kind of dive So now
joe are beedies broker with whom he has become friends
ish over the last few years Well has tohave the
unpleasant phone call that joe must present money to make
his fifty percent margin maximum work Because he's over that
fifty percent number Why Because the three hundred grand is
now i'll say two hundred grand was only allowed to
borrow one hundred grand Fifty spent two hundred That would
be the hundred yet He's borrowed one hundred fifty So
he needs fifty thousand bucks right now to make himself
hole or else And the else's that the brokerage just
goes and sells stocks at whatever price they're trading at
until his margin max is hit So joe or the
brokerage has to sell shares producing that cash and it's
tough to do in a market that's down big Thank
you kim jeong eun So this is bad enough it's
an unpleasant conversation Joe will probably blame the broker for
not preventing him from making whatever stupid bets he made
and joe might switch and move on to e trade
or somewhere else His friendships probably over so yes that's
bad but in the era before the fifty percent wreg
team margin limits there were essentially no training wheels on
retail investors Uneducated investors could borrow whatever they were allowed
to borrow by the brokerage So then instead of having
a fifty percent cab well investors would not have toe
on ly cell essentially all of their stock portfolio to
pay for their margin when things went down But they
might suffer incremental debts beyond it where sadly the brokerage
has to bring the sheriff kicked the wife and kids
out of the home repossess the icebox there horse named
betsy and their brand new state of the art electric
toaster What it was like back then and now instead
of being less wealthy well joe and his entire family
are flat broke and living on a horse down by
the river So while wreg t drew a lot of
mumbling about overly active government intervention at the time that
it was released it in fact made for a dramatically
Smoother transition When times got tough as they always do
in the stock market and as retail investors seemed always
forget What goes up usually comes down and you know 00:04:29.314 --> [endTime] tough maybe maybe that's What the t stands for
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