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355 S-122 Reg. T-79 BOARD OF GOVERNORS CF' THE FEDERAL RESERVE SYSTEM WASHINGTON ADDREISB OFFICIAL CORRESPONDENCE TO THE BOARD October 27, 1938~ Dear Sir: There is attached a copy of a ruling which will be published in the Federal Reserve Bulletin regarding "Withdrawal from General Account Followed by Other Transactions on Same Day". It will be noted that the attached ruling is in the form of a statement for the press which, however, is not to be released until the time specified on the statement. Very truly yours, L. P. Bethea, Assistant Secretary. Inclosure. TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS. 356 BOARD OF GOVERNORS OF mE FEDERAL RESERVE SYSTEM STATEMENT FOR THE PRESS For release in morning papers, Tuesday, November 1, 1938. The following ruling will appear in the Federal Reserve Bulletin. Withdrawal from General Account Follqwed by Other Transactions on Same Day The second paragraph of section 3(b) of Regulation T provides, in part, as follows: "A transaction consisting of a withdrawal of cush or registered or exempted securities from a general account ahal.l be permissible only on condition that * * * the transactions (including such withdrawal) on the day of such withdrawal would not create an excess of the adjusted deM. t balance of the account over the maximum loan value of the securities 1n the account or increase any such excess." In order to insure compliance with this provision many brokers make it a practice to permit no withdrawals from the account without being assured that trading in the account h9.s been concluded for the day. 'rhe Board, however, recently received inquiries regarding two situations in which a broker, having failed to take this precaution, permitted a withdrawal that was followed by transqctions which, in combination with the withdrawnl, would create or increase an excess c>f the adjusted debit balance of the account unless margin was deposited in the 8.ccount 35? -2- on the same day. For simplicity of exposition these cases may be assumed to be alike in that at the beginning of the day the adjusted debit balance of the account exactly equalled the maximum loan value of the securities in the account, and that early in the d~y $2500 of registered nonexempted securities were sold. Under present loan values of 60 per cent, this released margin in the complement'lry percentage of 40 per cent, i.e., $1000. The cred- itor pormitted thG customer to withdraw this $1000 in cash. Later in the day other securities were purchased in the account. In one case t2ooo of registered nonexempted securities were purchased, requiring $800 of margin, i.e. , $;200 less than the $·1000 wi tlldrai'm. In the other case *'4000 of such socu:r·i ties were purchased, requiring $1600 of margin, i.e. , $600 more than the amount withdrawn. The question in erich c"lsc related to thEJ time within which the required margin must be obt'1ined from the customer. The provisions of section 3(b) quoted above clearly forhid a 1si thdr'1wal of cash or sccuri ties if tho withdrawal, in combination with the other transactions on the same day, would create or increase an excess of the adjusted debit balance of the account. Accordingly, in the case of the subsequent transaction requiring $'800 margin it would be necessary for the creditor to obtain the 358 -3- full amount of' such margin before the end of the day on which the withdrawal took place. In the other case, in which the subsequent transaction required $1600 margin or $600 more than that originally withdrawn, it would be necessary to obtain, on the date of the transactions in question, the $1000 which had been withdrawn. The remaining $600 required could be obtained, as provided for ordinary transactions by the first paragraph of section 3(b), "as promptly as possible and in any event before the expiration of three full business d~ys following the date of such transaction."
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