Final answer:
Reg T requires that trades in a Cash account must be paid for in full and cannot be bought on margin. This regulation helps prevent risks associated with high trade imbalances and financial capital flows.
Step-by-step explanation:
Regulation T, also known as Reg T, is established by the Federal Reserve Board and governs the amount of credit that broker-dealers can provide to customers for purchasing securities. One of the requirements of Reg T is that a trade executing in a Cash account must be paid for in full and cannot be bought on margin - that is, the investor must have the full amount of cash necessary for the trade at the time of the purchase.
Failing to comply with this rule can cause significant risks, such as the risk of ending up with an exchange rate that may cause a large trade imbalance and very high inflows or outflows of financial capital, affecting the stability of economic systems.