Margin Rules and Margin Trading: Past, Present, and Implications

Margin — collateral or funds that investors deposit with their counterparties — is a crucial component of the practice of borrowing money to fund investment. While margin offers the potential for enhanced returns, it also exposes investors to the risk of escalated losses, thereby necessitating stringent regulatory oversight. Delving into the regulatory framework governing margin trading, we provide historical insights into the origins and dynamics of various margin requirements, and we review academic studies that illuminate the implications of these regulations for asset pricing, financial stability, and the design of margin rules. With an eye to the future, we also outline recent advancements in the evolving landscape of margin rules, such as portfolio margin and central clearing.