Full text of Mimeograph Letters and Statements of the Board : Interpretation of Law or Regulation: Withdrawable Dividends Deducted From Amount of Margin Demanded by Broker, Number X-9825, Volume 46, Page 98

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X-9825
Reg. T-5
INTERPRETATION OF LAW OR REGULATION
(Copies to bo sent to all Federal reserve banks)
February 23, 1937.
Mr.
Assistant Cashier,
Federal Reserve Bank of
>
Dear Mr.

,

*

:
This refers to your letter of January 6, .1937 addressed

to Mr. Parry, Chief of the Division of Security Loans, regarding
the following situation under Regulation T:
" * * *, a customer cabled his broker instructions * * * to purchase listed securities costing
£10,600, which were purchased for his account. Prior to
this transaction, the account was restricted to tne extent of a few hundred dollars. During the preceding
thirty days dividends in the amount of approximately
$500 had been credited to the account and not withdrawn,
and there had been no transactions in the account subsequent to the crediting of the dividends until the subject transaction."
Section 8(b) of the regulation permits the withdrawal of
the dividends here involved, and you present the question whether
it is permissible for the broker to deduct the withdrawable dividends from the amount of the demand for margin, merely demanding
the difference of about $5400.

Otherwise, of course, the broker

would be required to demand the full amount of margin in the sum
of about $5900, possibly forwarding with such a demand, for margin
a check for the approximately•$500 of dividends.




The Board agrees with your view that it is permissible

X-9825
Reg. T-5

—2—

for the broker to deduct the amount of the withdrawable dividends
from the amount of the demand for margin instead of demanding the
full amount of margin without deduction of the dividends.

In order

to make it clear, however, that the dividends are not thereafter
available for other purposes, and also to comply fully with the requirement of the regulation that margin be demanded upon the basis
of the aggregate transactions in the account on a given day, the
notation that the dividends are no longer withdrawable (which in
effect amounts to a withdrawal and redeposit of the dividends)
should be made on the date of the transaction in question rather
than on the later date on which margin is deposited in response to
the demand.




Very truly yours,
(Signed)

Chester Morrill
Chester Morrill,
Secretary.