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FE D E RA L R E SE R V E BANK
O F NEW YORK
f Circular No. 3 9 8 5 1
L
June 9, 1953
J

AM EN DM EN T NO. 12 OF R E G U LA TIO N U

“ Redeemable Securities” o f Open-End Investment Companies

To all Banks, and Other Interested Persons,
in the Second Federal Reserve D istrict:

The B oa rd o f G overnors o f the F ederal R eserve System has adopted Am endm ent No. 12
o f R egulation U, effective A ugust 1, 1953. F ollow in g is the text o f the B o a r d ’s statement on
the amendment, released tod a y:
The B oard has adopted an amendment to Regulation U, the regulation which prescribes margin
requirements (currently 5 0 % ) on loans b y banks fo r the purpose o f purchasing or carrying stocks
registered on a national securities exchange.
The amendment makes it clear that the regulation applies to loans fo r the purpose o f purchasing
o r carrying certain shares issued b y open-end investment companies whose assets customarily include
registered stocks. The shares affected give the purchaser a proportionate interest in the issuing com­
p a n y ’s assets, and carry the right to convert his interest into the com pan y’s underlying assets or their
cash equivalent. Such shares are technically called “ redeemable securities.”
The action does not affect Regulation T, which, among other things, forbids securities brokers and
dealers to lend on securities not registered on a national securities exchange. Therefore, “ redeemable
securities” o f open-end investment companies cannot be given loan value by brokers or dealers unless
they are registered on a national securities exchange, which rarely is the case. A n d, o f course, this
action does not affect section 1 1 (d ) (1 ) o f the Securities Exchange A ct o f 1934 which prohibits a brokerdealer from extending credit, or arranging for the extension o f credit, on any security which was part
o f a new issue in the distribution o f which he participated within the preceding six months.

A co p y o f Am endm ent No. 12 is enclosed; additional copies w ill be furnished upon request.
The B oa rd has advised us that a list o f the “ redeemable secu rities” subject to the amend­
ment w ill be made a part o f the “ L ist o f Stocks R egistered on a N ational Securities E xch an ge,”
published pursuant to section 3 ( c ) o f the regulation. The list is being revised to reflect the
change made b y the amendment in section 3 ( c ) ; copies o f the revised list w ill be m ailed to all
banks p rio r to the effective date o f the amendment.




A

llan

S proul,

P resident.

A M E N D M E N T NO. 12 OF R E G U L A T IO N U
ISSUED B Y T H E BOARD OF GOVERNORS OP T H E FEDERAL RESERVE S Y STE M

Effective A ugust 1, 1953, subsections (6 ) and (c ) o f section 3 of
Regulation U are hereby amended to read as follow s:
( &) (1 ) No loan, however it may be secured, need be treated
as a loan fo r the purpose o f “ ca rryin g” a stock registered on a
national securities exchange unless the loan is as described in
section 3(Z>) (2) or the purpose o f the loan is to enable the borrower
to reduce or retire indebtedness which was originally incurred to
purchase such a stock, or, if he be a broker or a dealer, to carry
such stocks fo r customers.
(2 )
A loan fo r the purpose o f purchasing or carrying a
“ redeemable secu rity” (i.e. a redeemable proportionate interest
in the issuer’s assets) issued by an “ open-end com pany,” as defined
in the Investment Company A ct o f 1940, whose assets customarily
include stocks registered on a national securities exchange, shall
be deemed to be fo r the purpose o f purchasing or carrying a stock
so registered.
(c )
In determining whether or not a security is a “ stock
registered on a national securities exchange” or a “ redeemable
security” described in section 3 ( b ) ( 2) , a bank may rely upon any
reasonably current record o f such securities that is published or
specified in a publication o f the Board o f Governors o f the Federal
Reserve System.




PRINTED IN N E W YORK

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