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FEDERAL RESERVE BANK
O F NEW YORK

r Circular No. S 5 4 5 1
I
M arch 16. 1950 J

R E G U L A T IO N U OF TH E B O A R D OF G O V E R N O RS OF TH E
FE D E R A L RE SER V E SYSTEM AS AM E N D E D TO JU LY 20, 1949

To all Banks, Members o f National Securities Exchanges,
and Other Interested Persons, in the Second Federal Reserve D istrict:

Enclosed herewith is a printed copy of Regulation U o f the Board
of Governors of the Federal Reserve System as amended to July 20,
1949, relating to loans by banks for the purpose of purchasing or
carrying stocks registered on a national securities exchange.

The

enclosed copy o f Regulation IT incorporates the changes in the regula­
tion made by Amendment No. 9, effective May 1, 1949, Amendment
No. 10, effective May 16, 1949, and Amendment No. 11, effective July
20, 1949, which are the only amendments since the last printing o f
the regulation in the form as amended to April 1, 1948.

The Supple­

ment to Regulation U, effective March 30, 1949, remains unchanged.
Additional copies o f the regulation and supplement will be fur­
nished upon request.




A

l l a n

S

p r o u l

,

President.

BOARD OF GOVERNORS
o f the
FEDERAL RESERVE SYSTEM

L O A N S B Y B A N K S FO R T H E P U R P O SE O F
P U R C H ASIN G O R C A R R Y IN G STO C K S
R E G IST E R E D O N A N A T IO N A L
SEC U RITIES E X C H A N G E




REGULATION U

As am ended to July 2 0 ,

1949

INQUIRIES REGARDING THIS REGULATION
A n y in q u iry relatin g to this reg u la tion sh ou ld
be addressed to the F ederal R eserve
B an k o f the district in w hich
the in q u iry arises.




EXPLAN ATORY FO REW O RD
(N ot a part o f the reg u la tion )
This regulation is issued pursuant to the provisions o f section 7 of
the Securities Exchange Act o f 1934.
The regulation does not prevent a bank from taking for any loan
collateral in addition to that required by the regulation, nor does it
require a bank to reduce any loan, to obtain additional collateral for
any outstanding loan, or to call any outstanding loan because of
insufficient collateral.

N o te .— A mendments N os. 1 through 11 are included in this reprint.




REGULATION U
am ended to July 2 0 ,

As

1949

LO A N S B Y B A N K S FO R T H E P U R P O SE OF
P U R C H ASIN G O R C A R R Y IN G ST O C K S
R E G IST E R E D O N A N A T IO N A L
SE C U RITIES E X C H A N G E
S E C T IO N

1 . G E N E R A L R U LE

On and after M ay 1, 1936, no bank shall make any loan secured
directly or indirectly by any stock for the purpose o f purchasing or
carrying any stock registered on a national securities exchange in an
amount exceeding the maximum loan value o f the collateral, as pre­
scribed from time to time for stocks in the supplement to this regula­
tion and as determined by the bank in good faith for any collateral
other than stocks.
For the purpose o f this regulation, the entire indebtedness o f any
borrower to any bank incurred on or after M a y 1, 1936, or at any
previous time, for the purpose o f purchasing or carrying stocks regis­
tered on a national securities exchange shall be considered a single
loan,* and all the collateral securing such indebtedness shall be con­
sidered in determining whether or not the loan complies with this
regulation.*
W hile a bank maintains any such loan, whenever made, the bank
shall not at any time permit withdrawals or substitutions o f collateral
that would cause the maximum loan value o f the collateral at such time
to be less than the amount o f the loan. In case such maximum loan
value has become less than the amount of the loan, a bank shall not
permit withdrawals or substitutions that would increase the deficiency;
but the amount o f the loan m ay be increased if there is provided
additional collateral having maximum loan value at least equal to the
amount o f the increase.
S E C T IO N

2 . E X C E P T IO N S T O G E N E R A L R U L E

Notwithstanding the foregoing, a bank m ay make and m ay main­
tain any loan for the purpose specified above, without regard to the
limitations prescribed above, if the loan comes within any o f the fol­
lowing descriptions:
(a) A ny loan to a bank or to a foreign banking institution;
* In applying this provision, especially when the borrower is a broker or dealer in securities, see
particularly sections 3 (m ), (n ), and (o).




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R E G U L A T IO N

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I b ) A ny loan made prior to July 16, 1945, to any person whose
total indebtedness to the bank at the date o f and including such
loan does not exceed $1,000;
(c)
Any loan to a dealer, or to two or more dealers, to aid in
the financing o f the distribution o f securities to customers not
through the medium o f a national securities exchange;
(<I) Any loan to a broker or dealer that is made in exceptional
circumstances in good faith to meet his emergency needs;
(e) A ny loan to a broker or dealer secured by any securities
which, according to written notice received by the bank from
the broker or dealer pursuant to a rule o f the Securities and
Exchange Commission concerning the hypothecation o f customers’
securities (Rule X -8 C -1 or Rule X -1 5 C 2 -1 ), are securities carried
for the account o f one or more customers, provided the bank
accepts in good faith from the broker or dealer a signed statement
to the effect that he is subject to the provisions o f Regulation T
(or that he does not extend or maintain credit to or for customers
cxcept in accordance therewith as if he were subject thereto!;
(/) Any temporary advance to finance the purchase or sale of
securities for prompt delivery which is to be repaid in the ordi­
nary course o f business upon completion o f the transaction;
(</) A ny loan against securities in transit, or surrendered for
transfer, which is payable in the ordinary course o f business upon
arrival o f the securities or upon completion o f the transfer;
( h)
Any loan which is to be repaid on the calendar day on
which it is made;
(?) Any loan made outside the 48 States o f the United States
and the District o f Colum bia;
(j ) Any loan to a member o f a national securities exchange for
the purpose o f financing his or his customers’ bona fide arbitrage
transactions in securities;
(A ) Any loan to a member o f a national securities exchange for
the purpose o f financing such member’s transactions as an odd-lot
dealer in securities with respect to which he is registered on such
national securities exchange as an odd-lot dealer.
S E C T IO N

3 . M IS C E L L A N E O U S P R O V IS IO N S

(а) In determining whether or not a loan is for the purpose specified
in section 1 or for any o f the purposes specified in section 2, a bank
may rely upon a statement with respect thereto, accepted by the bank
in good faith, signed by an officer o f the bank or by the borrower.
(б ) N o loan, however it may be secured, need be treated as a loan




R E G U L A T IO N

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3

for the purpose o f “ carrying” a stock registered on a national securi­
ties exchange unless the purpose o f the loan is to enable the borrower
to reduce or retire indebtedness which was originally incurred to pur­
chase such a stock, or, if he be a broker or dealer, to carry such stocks
for customers.
(c) In determining whether or not a security is a “ stock registered
on a national securities exchange,” a bank may rely upon any reason­
ably current record o f stocks so registered that is published or speci­
fied in a publication o f the Board o f Governors o f the Federal Reserve
System.
(d ) The renewal or extension o f maturity o f a loan need not be
treated as the making o f a loan if the amount o f the loan is not
increased except by the addition o f interest or service charges on
the loan or o f taxes on transactions in connection with the loan.
(e) A bank may accept the transfer o f a loan from another bank,
or permit the transfer o f a loan between borrowers, without following
the requirements o f this regulation as to the making o f a loan, pro­
vided the loan is not increased and the collateral for the loan is not
changed; and, after such transfer, a bank may permit such with­
drawals and substitutions o f collateral as the bank might have per­
mitted if it had been the original maker o f the loan or had originally
made the loan to the new borrower.
(/) A loan need not be treated as collateralled by securities which
are held by the bank only in the capacity o f custodian, depositary or
trustee, or under similar circumstances, if the bank in good faith has
not relied upon such securities as collateral in the making or mainte­
nance o f the particular loan.
(g) N othing in this regulation shall be construed to prevent a bank
from permitting withdrawals or substitutions o f securities to enable
a borrower to participate in a reorganization.
(h) N o mistake made in good faith in connection with the making
or maintenance o f a loan shall be deemed to be a violation o f this
regulation.
(i) Nothing in this regulation shall be construed as preventing a
bank from taking such action as it shall deem necessary in good faith
for its own protection.
(;) Every bank shall make such reports as the Board o f Governors
o f the Federal Reserve System m ay require to enable it to perform the
functions conferred upon it by the Securities Exchange A ct o f 1934.
(A-) Terms used in this regulation have the meanings assigned to




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R E G U L A T IO N

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them in such portions o f section 3 fa) o f the Securities Exchange A ct
o f 1934 as are printed in the appendix to this regulation, except that
the term “ bank” does not include a bank which is a member o f a
national securities exchange.
(I)
The term “ stock” includes any security com m only known as a
stock, any voting trust certificate or other instrument representing
such a security, and any warrant or right to subscribe to or purchase
such a security.
(m ) Indebtedness “ subject to section 1” is indebtedness which is
secured directly or indirectly by any stock, is for the purpose o f pur­
chasing or carrying any stock registered on a national securities
exchange, and is not excepted by section 2.
(n) In the case o f any loan subject to section 1 to a broker or
dealer in securities, and in the case o f any such loan to any other
borrower whose indebtedness the bank elects to treat for the purposes
o f this subsection as if it were that o f a broker or dealer, the bank
shall identify all the collateral used to meet the collateral requirements
o f section 1 and shall not cancel the identification o f any part thereof
except in circumstances that would permit the withdrawal o f that part.
Such identification may be made by any reasonable method.
In any such case------(1) Only the collateral so identified shall have loan value for
purposes o f section 1 or be subject to the restrictions therein speci­
fied with respect to withdrawals and substitutions; and
(2) For any indebtedness o f the same borrower that is not sub­
ject to section 1 (other than a loan described in section 2 (d ), (f) ,
(g ), or ( h ) ) , the bank shall in good faith require as much col­
lateral not so identified as the bank would require (if any) if it
held neither the indebtedness subject to section 1 nor the identified
collateral. This rule shall not be construed, however, to require
the bank, after it has made any loan, to obtain any collateral
therefor because o f any decline in the value or quality of the col­
lateral or in the credit rating o f the borrower.
(o)
In the case o f a loan to a member o f a national securities
exchange who is registered and acts as a specialist in securities on the
exchange for the purpose o f financing such member’s transactions
as a specialist in such securities, the maximum loan value o f any
stock shall be as determined by the bank in good faith provided that
the specialist’s exchange, in addition to other requirements applicable
to specialists, is designated by the B oard o f Governors o f the Federal
Reserve System as requiring reports suitable for supplying current
information regarding specialists’ use o f credit pursuant to this section.




R E G U L A T IO N

U

O

ip) A loan need not com ply with the other requirements o f this
regulation if it is to enable the borrower to acquire a stock by exercising
a right to acquire such stock which is evidenced by a warrant or certifi­
cate issued to stockholders and expiring within 90 days of issuance,
provided that (1) each such acquisition under this subsection shall be
treated separately, and the loan when made shall not exceed 75 per cent
o f the current market value o f the stock so acquired as determined
by any reasonable method, ( 2 1 while the borrower has any loan out­
standing at the bank under this subsection no withdrawal or substitu­
tion o f stock used to make such loan shall be permissible, except that
when the loan has become equal to or less than the maximum loan
value of the stock as prescribed for section 1 in the Supplement to this
regulation the stock and indebtedness may thereafter be treated as
subject to section 1 instead of this subsection, and (3) no loan shall be
made under this subsection at any time when the borrower has any such
loan at the bank which has been outstanding more than 9 months
without becoming eligible to be treated as subject to section 1. In order
to facilitate the exercise o f a right under this subsection, a bank
may permit the right to be withdrawn from a loan subject to section 1
without regard to any other requirement o f this regulation.







R E G U L A T IO N

U

A PP E N D IX
There are printed below certain provisions o f the Securities E x­
change A ct o f 1934:
Sec. 3. (a) * * *
(3) The term “ member” when used with respect to an exchange
means any person who is permitted either to effect transactions
on the exchange without the services o f another person acting as
broker, or to make use o f the facilities o f an exchange for trans­
actions thereon without payment o f a commission or fee or with
the payment o f a commission or fee which is less than that
charged the general public, and includes any firm transacting a
business as broker or dealer o f which a member is a partner, and
any partner o f any such firm.
(4) The term “ broker” means any person engaged in the busi­
ness o f effecting transactions in securities for the account o f
others, but does not include a bank.
(5) The term “ dealer” means any person engaged in the busi­
ness o f buying and selling securities for his own account, through
a broker or otherwise, but does not include a bank, or any person
insofar as he buys or sells securities for his own account, either
individually or in some fiduciary capacity, but not as a part o f
a regular business.
(6) The term “ bank” means (A ) a banking institution organ­
ized under the laws o f the United States, (B ) a member bank of
the Federal Reserve System, (C ) any other banking institution,
whether incorporated or not, doing business under the laws o f any
State or o f the United States, a substantial portion o f the busi­
ness o f which consists o f receiving deposits or exercising fiduciary
powers similar to those permitted to national banks under section
11 (k ) o f the Federal Reserve Act, as amended, and which is
supervised and examined by State or Federal authority having
supervision over banks, and which is not operated for the purpose
o f evading the provisions o f this title, and (D ) a receiver, con­
servator, or other liquidating agent o f any institution or firm
included in clauses ( A ) , ( B ) , or (C ) o f this paragraph.
* « « * «
(9) The term “ person” means an individual, a corporation, a
partnership, an association, a joint-stock com pany, a business
trust, or an unincorporated 'organization.
(10) The term “ security” means any note, stock, treasury
stock, bond, debenture, certificate o f interest or participation in
any profit-sharing agreement or in any oil, gas, or other mineral
royalty or lease, any collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment con­
tract, voting-trust certificate, certificate o f deposit, for a security,
or in general, any instrument com m only known as a “ security” ;
or any certificate o f interest or participation in, tem porary or




7

REGULATION U

interim certificate for, receipt for, or warrant or right to sub­
scribe to or purchase, any o f the foregoing; but shall not include
currency or any note, draft, bill o f exchange, or banker’s accept­
ance which has a maturity at the time o f issuance o f not exceed­
ing nine months, exclusive o f days o f grace, or any renewal
thereof the maturity o f which is likewise limited.
* * * * *
Sec. 7 .(a) For the purpose o f preventing the excessive use of
credit for the purchase or carrying o f securities, the Board of
Governors o f the Federal Reserve System shall, prior to the effec­
tive date o f this section and from time to time thereafter, pre­
scribe rules and regulations with respect to the amount o f credit
that may be initially extended and subsequently maintained on
any security (other than an exempted security) registered on a
national securities exchange. F or the initial extension o f credit,
such rules and regulations shall be based upon the following
standard: An amount not greater than whichever is the higher of—
(1) 55 per centum o f the current market price of the security,
or
(2) 100 per centum o f the lowest market price o f the security
during the preceding thirty-six calendar months, but not more
than 75 per centum o f the current market price.
Such rules and regulations may make appropriate provision with
respect to the carrying o f undermargined accounts for limited
periods and under specified conditions; the withdrawal o f funds
or securities; the substitution or additional purchases o f securi­
ties; the transfer o f accounts from one lender to another; special
or different margin requirements for delayed deliveries, short
sales, arbitrage transactions, and securities to which paragraph
(2) o f this subsection does not apply; the bases and the methods
to be used in calculating loans, and margins and market prices;
and similar administrative adjustments and details. F or the pur­
poses o f paragraph (2) o f this subsection, until July 1, 1936, the
lowest price at which a security has sold on or after July 1, 1933,
shall be considered as the lowest price at which such security has
sold during the preceding thirty-six calendar months.
(b ) Notwithstanding the provisions o f subsection (a) o f this
section, the Board o f Governors o f the Federal Reserve System,
m ay, from time to time, with respect to all or specified securities
or transactions, or classes o f securities, or classes o f transactions,
by such rules and regulations (1) prescribe such lower margin
requirements for the initial extension or maintenance o f credit as
it deems necessary or appropriate for the accom modation o f com ­
merce and industry, having due regard to the general credit situa­
tion o f the country, and (2) prescribe such higher margin require^
ments for the initial extension or maintenance o f credit as it may
deem necessary or appropriate to prevent the excessive use of
credit to finance transactions in securities.
(c) It shall be unlawful for any member o f a national securities
exchange or any broker or dealer who transacts a business in




R E G U L A T IO N

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securities through the medium o f any such member, directly or
indirectly to extend or maintain credit or arrange for the exten­
sion or maintenance o f credit to or for any customer—
(1) On any security (other than an exempted security) regis­
tered on a national securities exchange, in contravention o f the
rules and regulations which the Board o f Governors o f the Fed­
eral Reserve System shall prescribe under subsections (a) and
(b ) o f this section.
(2) W ithout collateral or on any collateral other than ex­
empted securities a n d /o r securities registered upon a national
securities exchange, except in accordance with such rules and
regulations as the Board o f Governors o f the Federal Reserve
System may prescribe (A ) to permit under specified conditions
and for a limited period any such member, broker, or dealer to
maintain a credit initially extended in conform ity with the rules
and regulations o f the Board o f Governors o f the Federal R e­
serve System, and (B ) to permit the extension or maintenance
o f credit in cases where the extension or maintenance o f credit
is not for the purpose o f purchasing or carrying securities or of
evading or circumventing the provisions o f paragraph (1) of
this subsection.
(d ) It shall be unlawful for any person not subject to sub­
section (c) to extend or maintain credit or to arrange for the
extension or maintenance o f credit for the purpose o f purchasing
or carrying any security registered on a national securities ex­
change, in contravention o f such rules and regulations as the
Board o f Governors of the Federal Reserve System shall prescribe
to prevent the excessive use o f credit for the purchasing or carry­
ing o f or trading in securities in circumvention o f the other pro­
visions o f this section. Such rules and regulations may impose
upon all loans made for the purpose o f purchasing or carrying
securities registered on national securities exchanges limitations
similar to those imposed upon members, brokers, or dealers by
subsection (c) o f this section and the rules and regulations there­
under. This subsection and the rules and regulations thereunder
shall not apply (A ) to a loan made by a person not in the ordi­
nary course o f his business, (B ) to a loan on an exempted security,
(C ) to a loan to a dealer to aid in the financing o f the distribution
o f securities to customers not through the medium o f a national
securities exchange, (D ) to a loan by a bank on a security other
than an equity security, or (E ) to such other loans as the Board
o f Governors o f the Federal Reserve System shall, by such rules
and regulations as it may deem necessary or appropriate in the
public interest or for the protection o f investors, exempt, either
unconditionally or upon specified terms and conditions or for
stated periods, from the operation o f this subsection and the rules
and regulations thereunder.
(e) The provisions o f this section or the rules and regulations
thereunder shall not apply on or before July 1, 1937, to any loan
or extension o f credit made prior to the enactment o f this title
or to the maintenance, renewal, or extension o f any such loan or




R E G U L A T IO N

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credit, except to the extent that the Board o f Governors of the
Federal Reserve System may by rules and regulations prescribe
as necessary to prevent the circumvention o f the provisions o f
this section or the rules and regulations thereunder by means o f
withdrawals o f funds or securities, substitutions o f securities, or
additional purchases or by any other device.
Sec. 2 9 .(a) Any condition, stipulation, or provision binding
any person to waive compliance with any provision o f this title
or o f any rule or regulation thereunder, or o f any rule o f an
exchange required thereby shall be void.
(b) Every contract made in violation o f any provision o f this
title or o f any rule or regulation thereunder, and every contract
(including any contract for listing a security on an exchange)
heretofore or hereafter made the performance o f which involves
the violation of, or the continuance o f any relationship or practice
in violation of, any provision o f this title or any rule or regu­
lation thereunder, shall be void (1) as regards the rights o f any
person who, in violation o f any such provision, rule, or regulation,
shall have made or engaged in the performance o f any such con ­
tract, and (2) as regards the rights o f any person who, not being
a party to such contract, shall have acquired any right there­
under with actual knowledge o f the facts by reason o f which the
making or performance o f such contract was in violation o f any
such provision, rule or regulation. * * *
(c) Nothing in this title shall be construed (1) to affect the
validity o f any loan or extension o f credit (or any extension or
renewal thereof) made or o f any lien created prior or subsequent
to the enactment o f this title, unless at the time o f the making
o f such loan or extension o f credit (or extension or renewal
thereof! or the creating o f such lien, the person making such loan
or extension o f credit (or extension or renewal thereof) or acquir­
ing such lien shall have actual knowledge o f facts by reason o f
which the making o f such loan or extension o f credit (or exten­
sion or renewal thereof) or the acquisition o f such lien is a viola­
tion o f the provisions o f this title or any rule or regulation there­
under, or (2) to afford a defense to the collection o f any debt or
obligation or the enforcement o f any lien by any person who shall
have acquired such debt, obligation, or lien in good faith for value
and without actual knowledge o f the violation o f any provision
o f this title or any rule or regulation thereunder affecting the
legality o f such debt, obligation, or lien.
Sec. 3 2(a) A ny person who willfully violates any provision of
this title, or any rule or regulation thereunder the violation o f which
is made unlawful or the observance o f which is required under
the terms o f this title, or any person who willfully and knowingly
makes, or causes to be made, any statement in any application,
report, or document required to be filed under this title or any
rule or regulation thereunder or any undertaking contained in a
registration statement as provided in subsection (d ) o f section
15 o f this title, which statement was false or misleading with
respect to any material fact, shall upon conviction be fined not




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more than $10,000, or imprisoned not more than two years, or
both, except that when such person is an exchange, a fine not
exceeding $500,000 m ay be imposed; but no person shall be subject
to imprisonment under this section for the violation o f any rule
or regulation if he proves that he had no knowledge o f such rule
or regulation.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102