Fed forced to let risky OTC stocks back margin loans within 90 days

What it does

This bill requires the Federal Reserve to expand which stocks can be used as collateral for margin loans (borrowing to buy stocks). Currently, only stocks meeting strict criteria qualify; the bill would add over-the-counter (OTC) stocks that have an active market. If the Fed doesn't act within 90 days, the expansion happens automatically. The Fed must report back in 5 years on credit risks.

Why we flagged it

The bill's operative mechanism is a regulatory expansion that loosens collateral standards for margin lending, allowing riskier OTC securities to back leveraged borrowing. This is a deregulatory move that benefits financial intermediaries and leveraged traders at the cost of systemic stability.

What the text implies

• Expansion of margin eligibility for OTC stocks may increase retail investor exposure to pump-and-dump schemes and market manipulation, which are more common in OTC markets and harder to detect.
• Automatic rule-making if Fed fails to act within 90 days creates a de facto regulatory mandate that bypasses normal Fed deliberation and may pressure the agency to issue a rule it would not otherwise adopt.
• 5-year reporting requirement provides no enforcement mechanism or authority for the Fed to reverse the rule if systemic risks materialize, locking in the expansion even if credit losses spike.
• OTC stocks have lower liquidity and wider bid-ask spreads than exchange-traded securities; margin calls on OTC collateral could force fire sales and amplify market stress during volatility spikes.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

Retail investors gain easier access to leverage on OTC stocks, potentially lowering borrowing costs and expanding investment opportunities; however, OTC markets are less regulated and more volatile than exchange-traded stocks, and margin amplifies losses during downturns, creating systemic risk that could harm ordinary savers and retirees if credit losses cascade.

Who stands to gain

• broker-dealers and margin lenders (expanded lending volume on OTC securities)
• OTC market makers and dealers (increased trading activity and spreads)
• retail and institutional investors using leverage (lower collateral requirements)

Named in the bill

Federal Reserve Board of Governors, House Committee on Financial Services, Senate Committee on Banking, Housing, and Urban Affairs, SEC (referenced via 17 CFR 240.15c3–1), OTC markets

Where it stands

1 cosponsor: 1 Republicans.

• Sep 24, 2026 — Introduced · Congress.gov: “Introduced in House”
• Sep 24, 2026 — Referred to House Committee on Financial Services · Congress.gov: “Referred to the House Committee on Financial Services”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.