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FEDERAL RESERVE BANK
OF NEW YORK
f Circular No. 1 6 5 5 ~[
L
April 2,1936
J

REGULATION U, AND SUPPLEMENT THERETO,
BOTH EFFECTIVE MAY 1, 1936
Loans by Banks for the Purpose of Purchasing and Carrying Stocks
Registered on a National Securities Exchange

To All Banks, Members of National Securities Exchanges,
Brokers and Dealers in Securities, and Others Interested,
in the Second Federal Reserve District:

Enclosed herewith are printed copies of Regulation U and supplement thereto both effective May 1, 1936, issued by the Board of
Governors of the Federal Reserve System relating to "Loans by
Banks for the Purpose of Purchasing and Carrying Stocks Registered
on a National Securities Exchange".
This regulation and supplement apply to loans made on or after
May 1, 1936, by all banks whether or not they are members of the
Federal Reserve System.
Additional copies of the regulation and supplement will be furnished upon request.




J. H. CASE,

Federal Reserve Agent.

SUPPLEMENT TO REGULATION U
ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Effective May 1, 1936
For the purpose of section 1 of Regulation U, the maximum loan
value of any stock, whether or not registered on a national securities
exchange, shall be 45 per cent of its current market value, as determined by any reasonable method.
Loans to brokers and dealers. Notwithstanding the foregoing, a
stock, if registered on a national securities exchange, shall have a
special maximum loan value of 60 per cent of its current market
value, as determined by any reasonable method, in the case of a loan
to a broker or dealer from whom the bank accepts in good faith a
signed statement to the effect (1) that he is subject to the provisions
of Regulation T (or that he does not extend or maintain credit to or
for customers except in accordance therewith as if he were subject
thereto), and (2) that the securities hypothecated to secure the loan
are securities carried for the account of his customers other than his
partners.




BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM

LOANS BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING STOCKS
REGISTERED ON A NATIONAL
SECURITIES EXCHANGE

REGULATION U

This regulation as printed herewith is in the form as approved
effective May 1, 1936




INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed to the
Federal Reserve bank of the district in which the inquiry arises.




EXPLANATORY FOREWORD
(Not a part of the regulation)
This regulation is issued pursuant to the provisions of section 7 of
the Securities Exchange Act of 1934 and relates only to loans made
on or after May 1, 1936. It is not retroactive.
The regulation does not restrict the right of a bank to extend credit,
whether on securities or otherwise, for any commercial, agricultural,
or industrial purpose, or for any other purpose except the purchasing
or carrying of stocks registered on a national securities exchange.
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.




REGULATION U
Effective May 1, 1936
LOANS BY BANKS FOR THE PURPOSE OF PURCHASING
OR CARRYING STOCKS REGISTERED ON A NATIONAL
SECURITIES EXCHANGE.
SECTION 1. GENERAL RULE

On and after May 1, 1936, no bank shall make any loan secured
directly or indirectly by any stock for the purpose of purchasing or
carrying any stock registered on a national securities exchange in an
amount exceeding the maximum loan value of the collateral, as prescribed from time to time for stocks in the supplement to this regulation and as determined by the bank in good faith for any collateral
other than stocks.
For the purpose of this regulation, the entire indebtedness of any
borrower to any bank incurred on or after May 1, 1936, for the purpose of purchasing or carrying stocks registered on a national securities exchange shall be considered a single loan; and all the collateral
securing such indebtedness shall be considered in determining whether
or not the loan complies with this regulation.
After any such loan has been made, a bank shall not at any time
permit withdrawals or substitutions of collateral that would cause the
maximum loan value of the collateral at such time to be less than the
amount of 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
of the loan may be increased if there is provided additional collateral
having maximum loan value at least equal to the amount of the
increase.
SECTION 2. EXCEPTIONS TO GENERAL RULE

Notwithstanding the foregoing, a bank may make and thereafter
maintain any loan for the purpose specified above, without regard to
the limitations prescribed above, if the loan comes within any of the
following descriptions:
(a) Any loan to a bank or to a foreign banking institution;
(b) Any loan to any person whose total indebtedness to the
bank at the date of and including such loan does not exceed
$1,000;
(c) Any loan to a dealer, or to two or more dealers, to aid in




1

2

REGULATION U

the financing of the distribution of securities to customers not
through the medium of a national securities exchange;
(d) Any loan to a broker or dealer that is made in exceptional
circumstances in good faith to meet his emergency needs;
(e) Any loan for the purpose of purchasing a stock from or
through a person who is not a member of a national securities
exchange and is not a broker or dealer who transacts a business in
securities through the medium of any such member, or for the
purpose of carrying a stock so purchased;
(/) Any temporary advance to finance the purchase or sale of
securities for prompt delivery which is to be repaid in the ordinary course of business upon completion of the transaction;
(g) Any loan against securities in transit, or surrendered for
transfer, which is payable in the ordinary course of business upon
arrival of the securities or upon completion of the transfer;
(h) Any loan which is to be repaid on the calendar day on
which it is made;
(i) Any loan made outside the 48 States of the United States
and the District of Columbia.
SECTION 3. MISCELLANEOUS PROVISIONS

(a) In determining whether or not a loan is for the purpose specified
in section 1 or for any of 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 of the bank or by the borrower.
(6) No-loan, howrever it may be secured, need be treated as a loan
for the purpose of "carrying" a stock registered on a national securities exchange unless the purpose of 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 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 reasonably current record of stocks so registered that is published or specified in a publication of the Board of Governors of the Federal Reserve
System.
(d) The renewal or extension of maturity of a loan need not be
treated as the making of a loan if the amount of the loan is not increased except by the addition of interest or service charges on the
loan or of taxes on transactions in connection with the loan.
(e) A bank may accept the transfer of a loan from another lender,
or permit the transfer of a loan between borrowers, without following
the requirements of this regulation as to the making of a loan, pro-




REGULATION U

O

vided the loan is not increased and the collateral for the loan is not
changed.
(/) A loan need not be treated as collateralled by securities which
are held by the bank only in the capacity of 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 maintenance of the particular loan.
(g) Nothing in this regulation shall be construed to prevent a bank
from permitting withdrawals or substitutions of securities to enable
a borrower to participate in a reorganization.
(h) No mistake made in good faith in connection with the making
or maintenance of a loan shall be deemed to be a violation of 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.
(j) Every bank shall make such reports as the Board of Governors
of the Federal Reserve System may require to enable it to perform the
functions conferred upon it by the Securities Exchange Act of 1934.
(k) Terms used in this regulation have the meanings assigned to
them in such portions of section 3 (a) of the Securities Exchange Act
of 1934 as are printed in the appendix to this regulation, except that
the term "bank" does not include a bank which is a member of a
national securities exchange.
{I) The term "stock" includes any security commonly 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.




APPENDIX
There are printed below certain provisions of the Securities Exchange Act of 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 of another person acting as
broker, or to make use of the facilities of an exchange for transactions thereon without payment of a commission or fee or with
the payment of a commission or fee which is less than that
charged the general public, and includes any firm transacting a
business as broker or dealer of which a member is a partner, and
any partner of any such firm.
(4) The term "broker" means any person engaged in the business of effecting transactions in securities for the account of
others, but does not include a bank.
(5) The term "dealer" means any person engaged in the business of 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 of
a regular business.
(6) The term "bank" means (A) a banking institution organized under the laws of 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 of any
State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary
powers similar to those permitted to national banks under section
11 (k) of 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
of evading the provisions of this title, and (D) a receiver, conservator, or other liquidating agent of any institution or firm
included in clauses (A), (B), or (C) of this paragraph.
(9) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a business
trust, or an unincorporated organization.
(10) The term "security" means any note, stock, treasury
stock, bond, debenture, certificate of 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 contract, voting-trust certificate, certificate of deposit, for a security,
or in general, any instrument commonly known as a "security";
or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, or warrant or right to sub-




REGULATION U

0

scribe to or purchase, any of the foregoing; but shall not include
currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited.
Sec. 7. (a) For the purpose of preventing the excessive use of
credit for the purchase or carrying of securities, the Board of Governors of the Federal Reserve System shall, prior to the effective
date of this section and from time to time thereafter, prescribe
rules and regulations with respect to the amount of credit that
may be initially extended and subsequently maintained on any
security (other than an exempted security) registered on a national securities exchange. For the initial extension of 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 of the current market price of the
security, or
(2) 100 per centum of the lowest market price of the security
during the preceding thirty-six calendar months, but not more
than 75 per centum of the current market price.
Such rules and regulations may make appropriate provision with
respect to the carrying of undermargined accounts for limited
periods and under specified conditions; the withdrawal of funds
or securities; the substitution or additional purchases of securities; the transfer of accounts from one lender to another; special
or different margin requirements for delayed deliveries, short
sales, arbitrage transactions, and securities to which paragraph
(2) of 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. For the purposes of paragraph (2) of 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 of subsection (a) of this
section, the Board of Governors of the Federal Reserve System,
may, from time to time, with respect to all or specified securities or
transactions, or classes of securities, or classes of transactions, by
such rules and regulations (1) prescribe such lower margin requirements for the initial extension or maintenance of credit as it
deems necessary or appropriate for the accommodation of commerce and industry, having due regard to the general credit situation of the country, and (2) prescribe such higher margin requirements for the initial extension or maintenance of 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 of a national securities
exchange or any broker or dealer who transacts a business in
securities through the medium of any such member, directly or
indirectly to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer—
(1) On any security (other than an exempted security) regis-




REGULATION "U

tered on a national securities exchange, in contravention of the
rules and regulations which the Board of Governors of the Federal
Reserve System shall prescribe under subsections (a) and (b) of
this section.
(2) Without collateral or on any collateral other than exempted securities and/or securities registered upon a national
securities exchange, except in accordance with such rules and
regulations as the Board of Governors of 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 conformity with the rules
and regulations of the Board of Governors of the Federal Reserve
System, and (B) to permit the extension or maintenance of credit
in cases where the extension or maintenance of credit is not for
the purpose of purchasing or carrying securities or of evading or
circumventing the provisions of paragraph (1) of this subsection.
(d) It shall be unlawful for any person not subject to subsection (c) to extend or maintain credit or to arrange for the
extension or maintenance of credit for the purpose of purchasing
or carrying any security registered on a national securities exchange, in contravention of such rules and regulations as the
Board of Governors of the Federal Reserve System shall prescribe
to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of the other provisions of this section. Such rules and regulations may impose
upon all loans made for the purpose of purchasing or carrying
securities registered on national securities exchanges limitations
similar to those imposed upon members, brokers, or dealers by
subsection (c) of this section and the rules and regulations thereunder. This subsection and the rules and regulations thereunder
shall not apply (A) to a loan made by a person not in the ordinary course of his business, (B) to a loan on an exempted
security, (C) to a loan to a dealer to aid in the financing of
the distribution of securities to customers not through the medium
of 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 of Governors of 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 of investors, exempt, either unconditionally or upon specified
terms and conditions or for stated periods, from the operation of
this subsection and the rules and regulations thereunder.
(e) The provisions of this section or the rules and regulations
thereunder shall not apply on or before July 1, 1937, to any loan
or extension of credit made prior to the enactment of this title
or to the maintenance, renewal, or extension of any such loan or
credit, except to the extent that the Board of Governors of the
Federal Reserve System may by rules and regulations prescribe as
necessary to prevent the circumvention of the provisions of this
section or the rules and regulations thereunder by means of withdrawals of funds or securities, substitutions of securities, or
additional purchases or by any other device.




REGULATION U

7

Sec. 29. (a) Any condition, stipulation, or provision binding
any person to waive compliance with any provision of this title
or of any rule or regulation thereunder, or of any rule of an
exchange required thereby shall be void.
(b) Every contract made in violation of any provision of this
title or of any rule or regulation thereunder, and every contract
(including any contract for listing a security on an exchange)
heretofore or hereafter made the performance of which involves
the violation of, or the continuance of any relationship or practice in violation of, any provision of this title or any rule or regulation thereunder, shall be void (1) as regards the rights of any
person who, in violation of any such provision, rule, or regulation,
shall have made or engaged in the performance of any such contract, and (2) as regards the rights of any person who, not being
a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the
making or performance of such contract was in violation of any
such provision, rule or regulation.
(c) Nothing in this title shall be construed (1) to affect the
validity of any loan or extension of credit (or any extension or
renewal thereof) made or of any lien created prior or subsequent
to the enactment of this title, unless at the time of the making
of such loan or extension of credit for extension or renewal
thereof) or the creating of such lien, the person making such loan
or extension of credit (or extension or renewal thereof) or acquiring such lien shall have' actual knowledge of facts by reason of
which the making of such loan or extension of credit (or extension or renewal thereof) or the acquisition of such lien is a violation of the provisions of this title or any rule or regulation thereunder, or (2) to afford a defense to the collection of any debt or
obligation or the enforcement of any lien by any person who shall
have acquired such debt, obligation, or lien in good faith for value
and without actual knowledge of the violation of any provision
of this title or any rule or regulation thereunder affecting the
legality of such debt, obligation, or lien.
Sec. 32. Any person who willfully violates any provision of this
title, or any rule or regulation thereunder the violation of which
is made unlawful or the observance of which is required under
the terms of 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, which statement was false or misleading with respect to any material fact, shall upon conviction
be fined not 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 may be imposed; but no person shall be
subject to imprisonment under this section for the violation of
any rule or regulation if he proves that he had no knowledge of
such rule or regulation.




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