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FEDERAL RESERVE BANK
OF NEW YORK
f Circular No. 1 8O5 "1
L December 9,1937 J

REGULATION T AND SUPPLEMENT THERETO
REVISED EFFECTIVE JANUARY 1, 1938
Extension and Maintenance of Credit by Brokers, Dealers,
and Members of National Securities Exchanges

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

The Board of Governors of the Federal Reserve System has
adopted a revised Regulation T and supplement thereto, to become
effective January 1, 1938. The regulation relates to extension and
maintenance of credit by brokers, dealers, and members of national
securities exchanges.
For your information copies of the revised regulation and supplement thereto are sent to you herewith. Additional copies will be
furnished upon request.




GrEOKGE L . H A B R I S O N ,

President.

BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM

EXTENSION AND MAINTENANCE OF CREDIT
BY BROKERS, DEALERS, AND MEMBERS OF
NATIONAL SECURITIES EXCHANGES

REGULATION T

This regulation as printed herewith
is in the form as revised effective
January 1, 1938




INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed to a
national securities exchange of which the person making the inquiry is
a member or the facilities of which are used for his transactions, or,
if this be not practicable, the inquiry should be addressed to the Federal
Reserve bank of the district in which the inquiry arises. In the event
that an official of an exchange desires information as to any such question, he should make inquiry of the Federal Reserve bank of the district
in which the exchange is located.
II




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

Effective January 1, 1938.
Maximum loan value for general accounts.—The maximum loan
value of a registered security (other than an exempted security) in a
general account, subject to section 3 of Regulation T, shall be 60 percent of its current market value.
Maximum loan value for special omnibus accounts.—The maximum loan value of a registered security (other than an exempted security) in a special omnibus account, subject to section 4 of Regulation
T, shall be 75 percent of its current market value.
Margin required for short sales.—The amount to be included in
the adjusted debit balance of a general account pursuant to section
3(d) (3) of Regulation T, as margin required for short sales of securities (other than exempted securities) shall be 50 percent of the current
market value of each such security, and in the case of a special omnibus
account with another member, broker or dealer, such amount shall be
35 percent of such current market value.




CONTENTS
Page
SEC. 1. SCOPE OF REGULATION

1

SEC. 2. DEFINITIONS

1

SEC. 3. GENERAL ACCOUNTS

(a)
(6)
(c)
(d)
(e)
(/)
(g)
(h)

Contents of general account
General rule
Maximum loan value and current market value
Adjusted debit balance
Liquidation in lieu of deposit
Extensions of time
Transactions on given day
Unissued securities

2
2
3
3
4
4
5
5

SEC. 4. SPECIAL ACCOUNTS

(a)
b)
c)
d)
(e)
(J)

General rule
Special omnibus account
Special cash account
Special arbitrage account
Special commodity account
Special miscellaneous account

5
6
6
8
8
8

SEC. 5. BORROWINGS BY MEMBERS, BROKERS, AND DEALERS

(a) General rule
(6) Agreements of nonmember banks
(c) Borrowing from other creditors

9
9
9

SEC. 6. CERTAIN TECHNICAL DETAILS

(a)
(6)
(c)
(d)
(e)
(/")
(g)
(h)
(i)
0)
(k)

Accounts of partners
Contribution to joint adventure
Guaranteed accounts
Transfer of accounts
Reorganizations
Time of receipt of funds or securities
Interest, service charges, etc
Borrowing and lending securities
Credit for clearance of securities
Foreign currency
Innocent mistakes

9
10
10
10
11
11
11
12
12
12
12

SEC. 7. MISCELLANEOUS PROVISIONS

(a)
(6)
(c)
(d)
(e)

Arranging for loans by others
Maintenance of credit
Declaration as to purpose of loan
Reports
Additional requirements by exchanges and creditors

12
13
13
13
13

APPENDIX




14

III

REGULATION T
Revised Effective January 1, 1938
EXTENSION AND MAINTENANCE OF CREDIT BY BROKERS,
DEALERS, AND MEMBERS OF NATIONAL SECURITIES
EXCHANGES
SECTION 1. SCOPE OF REGULATION

This regulation is issued by the Board of Governors of the Federal
Reserve System (hereinafter called the "Board") pursuant to the
Securities Exchange Act of 1934 (hereinafter called the "Act"), particularly sections 7 and 8(a) thereof, and applies to every member of
a national securities exchange and to every broker or dealer who transacts a business in securities through the medium of any such member.
SECTION 2. DEFINITIONS

For the purposes of this regulation, unless the context otherwise
requires :
(a) The terms "person", "member", "broker", "dealer", "buy",
"purchase", "sale", "sell", "security", and "bank" have the meanings given them in section 3(a) of the Act, pertinent parts of which are
printed in the appendix to this regulation.
(b) The term "creditor" means 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.
(c) The term "customer" includes any person, or any group of
persons acting jointly, (1) to or for whom a creditor is extending or
maintaining any credit, or (2) who, in accordance with the ordinary
usage of the trade, would be considered a customer of the creditor.
It includes, in case the creditor is a firm, any partner in the firm who
would be considered a customer of the firm if he were not a partner,
and includes any joint adventure in which a creditor participates and
which would be considered a customer of the creditor if the creditor
were not a participant.
(d) The term "registered security" means any security which (1)
is registered on a national securities exchange; or (2) in consequence
of its having unlisted trading privileges on a national securities exchange is deemed, under the provisions of section 12(f) of the Act, to
be registered on a national securities exchange; or (3) is exempted by
the Securities and Exchange Commission from the operation of section
7(c) (2) of the Act only to the extent necessary to render lawful any




1

2

REGULATION T

direct or indirect extension or maintenance of credit on such security
or any direct or indirect arrangement therefor which would not have
been unlawful if such security had been a security (other than an
exempted security) registered on a national securities exchange.
(e) The term "exempted security" has the meaning given it in
section 3 (a) of the Act except that the term does not include a security
which is exempted by the Securities and Exchange Commission from
the operation of section 7(c) (2) of the Act only to the extent described
in subdivision (3) of section 2(d) of this regulation.
SECTION 3. GENERAL ACCOUNTS

(a) Contents of general account.—All financial relations between
a creditor and a customer, whether recorded in one record or in more
than one record, shall be included in and be deemed to be parts of the
customer's general account with the creditor, except that the relations
which section 4 permits to be included in any special account provided
for by that section may be included in the appropriate special account,
and all transactions in commodities for or with any customer shall be
included in the special commodity account provided for by sections
4(a) and 4(e).
(b) General rule.-—A creditor shall not effect for or with any customer in a general account any transaction which, in combination with
the other transactions effected in the account on the same day, creates
an excess of the adjusted debit balance of the account over the maximum loan value of the securities in the account, or increases any such
excess, unless in connection therewith the creditor obtains, as promptly
as possible and in any event before the expiration of three full business
days following the date of such transaction, the deposit into the account
of cash or securities in such amount that the cash deposited plus the
maximum loan value of the securities deposited equals or exceeds the
excess so created or the increase so caused.
A transaction consisting of a withdrawal of cash or registered or
exempted securities from a general account shall be permissible only
on condition that no cash or securities need be deposited in the account
in connection with a transaction on a previous day and that, in addition, the transactions (including such withdrawal) on the day of such
withdrawal would not create an excess of the adjusted debit balance
of the account over the maximum loan value of the securities in the
account or increase any such excess.
Rules for computing the maximum loan value of the securities in
a general account and the adjusted debit balance of such an account are
provided in sections 3(c) and 3(d), and certain modifications of and
exceptions to the general rule stated above are provided in the subsequent subsections of this section and in section 6.




REGULATION T

6

(c) Maximum loan value and current market value.—The maximum loan value of the securities in a general account is the sum of the
maximum loan values of the individual securities in the account, including securities (other than unissued securities) bought for the account but not yet debited thereto, but excluding securities sold for the
account whether or not payment has been credited thereto.
Except as otherwise provided in this section 3(c), the maximum
loan value of a registered security (other than an exempted security)
in a general account shall be such maximum loan value as the Board
shall prescribe for general accounts from time to time in the supplement to this regulation, and the maximum loan value of an exempted
security shall be as determined by the creditor in good faith. No
collateral other than registered securities or exempted securities shall
have any loan value in a general account.
A warrant or certificate which evidences only a right to subscribe
to or otherwise acquire any security and which expires within ninety
days of issuance shall have no loan value in a general account; but, if
the account contains, in addition to such warrant or certificate, the
security to the holder of which such warrant or certificate has been
issued, the current market value of such security (if the security be a
registered security) shall, for the purpose of calculating its maximum
loan value, be increased by the current market value of such warrant
or certificate.
For the current market value of a security throughout the day of
its purchase or sale, the creditor shall use its total cost or the net
proceeds of its sale, as the case may be, and at any other time shall
use the closing sale price of the security on the preceding business day
as shown by any regularly published reporting or quotation service.
In the absence of any such closing sale price, the creditor may use any
reasonable estimate of the market value of such security as of the close
of business on such preceding business day.
(d) Adjusted debit balance.—For the purposes of this regulation,
the adjusted debit balance of a general account shall be calculated by
taking the sum of the following items:
(1) the net debit balance, if any, of the account;
(2) the total cost of any securities (other than unissued securities) bought for the account but not yet debited thereto;
(3) the current market value of any securities (other than unissued securities) sold short in the account plus, for each such
security (other than an exempted security), such amount as the
Board shall prescribe from time to time in the supplement to this
regulation as the margin required for such short sales, except that
such amount so prescribed in the supplement need not be included




4

REGULATION T

when there are held in the account securities exchangeable or convertible within a reasonable time, without restriction other than
the payment of money, into such securities sold short;
(4) the amount of margin specified by section 3(h) for every
net commitment in the account in unissued securities, plus all unrealized losses on each commitment in unissued securities and
minus all unrealized gains (not exceeding the required margin) on
each commitment in unissued securities; and
(5) the amount of any margin customarily required by the
creditor in connection with his endorsement or guarantee of any
put, call or other option;
and deducting therefrom the sum of the following items:
(6) the net credit balance, if any, of the account; and
(7) the net proceeds of sale of any securities (other than unissued securities) sold for the account but for which payment has
not yet been credited thereto.
In case the general account is the account of a partner of the creditor,
the account of a joint adventure in which the creditor participates, a
guaranteed account, or the account of a customer who has guaranteed
the account of another customer, the adjusted debit balance shall be
computed according to the foregoing rule and the supplementary rules
prescribed in sections 6(a), 6(b), and 6(c).
(e) Liquidation in lieu of deposit.*—In any case in which the deposit required by section 3(b), or any portion thereof, is not obtained
by the creditor within the three-day period specified in that section,
securities shall be sold or covering or other liquidating transactions
shall be effected in the account, prior to the expiration of such threeday period, in such amount that the resulting decrease in the adjusted
debit balance of the account exceeds, by an amount at least as great
as such required deposit or the undeposited portion thereof, any resulting decrease in the maximum loan value of the securities in the account.
(/) Extensions of time.—In exceptional cases, the three-day period
specified in section 3(b) may, on application of the creditor, be extended for one or more limited periods commensurate with the circumstances by any regularly constituted committee of a national securities
exchange having jurisdiction over the business conduct of its members,
of which exchange the creditor is a member or through which his transactions are effected, provided such committee is satisfied that the
* This requirement relates to the action to be taken when a customer fails to make the deposit
required by section 3(b). and it is not intended to countenance on the part of customers the practice
commonly known as "free-riding" or "three-day riding", to prevent which the principal national
securities exchanges have adopted certain rules. See the rules of such exchanges and section
7(e) of this regulation.




REGULATION T

O

creditor is acting in good faith in making the application and that the
circumstances are in fact exceptional and warrant such action.
(g) Transactions on given day.—For the purposes of section 3(b),
the question of whether or not an excess of the adjusted debit balance
of a general account over the maximum loan value of the securities in
the account is created or increased on a given day shall be determined
on the basis of all the transactions in the account on that day exclusive
of any deposit of cash, deposit of securities, covering transaction or
other liquidation that has been effected on the given day, pursuant to
the requirements of section 3(b) or 3(e), in connection with a transaction on a previous day.
(h) Unissued securities.—The amount to be included in the adjusted debit balance of a general account as the margin required for a
net long commitment in unissued securities shall be the current market
value of the net amount of unissued securities long minus the maximum
loan value which such net amount of securities would have if they were
issued registered securities held in the account; and the amount to be
so included as the margin required for a net short commitment in
unissued securities shall be the amount which would be required as
margin for the net amount of unissued securities short if such securities
were issued securities and were sold short in the account: Provided,
That no amount need be included as margin for a net short commitment
in unissued securities when there are held in the account securities in
respect of which the unissued securities are to be issued, nor for any
net position in unissued securities that are exempted securities.
Whenever a creditor, pursuant to a purchase of an unissued security
for a customer, receives an issued security which is not a registered or
exempted security, the creditor shall treat any payment by him for
such issued security as a transaction (other than a withdrawal) which
increases the adjusted debit balance of the account by the amount of
the payment minus the amount required to be included in the adjusted
debit balance of the account, at the time of and in connection with
the purchase of the unissued security, as the margin required for such
purchase.
SECTION 4. SPECIAL ACCOUNTS

(a) General rule.—Pursuant to this section 4, a creditor may establish for any customer one or more special accounts.
Each such special account shall be recorded separately and shall be
confined to the transactions and relations specifically authorized for
such account by the appropriate subsection of this section and to transactions and relations incidental to those specifically authorized. An
adequate record shall be maintained showing for each such account the
full details of all transactions in the account.
A special account established pursuant to this section shall not be



6

REGULATION T

used in any way for the purpose of evading or circumventing any of
the provisions of this regulation. If a customer has with a creditor
both a general account and one or more such special accounts, the
creditor shall treat each such special account as if the customer had
with the creditor no general account.
The only other conditions to which transactions in such special accounts shall be subject under the provisions of this regulation shall be
such conditions as are specified in the appropriate subsection of this
section and in sections 2, 6 and 7.
(b) Special omnibus account.—In a special omnibus account, a
member of a national securities exchange may effect for a customer
transactions which are effected in reliance upon a signed statement
which the member has accepted from the customer in good faith, and a
duplicate original of which has been filed by the member with the secretary of a national securities exchange of which he is a member, that
the customer is a broker or dealer who is subject to the provisions of
this regulation or has places of business only in foreign countries; and
such a special omnibus account shall be subject to all the conditions to
which it would be subject if it were a general account except that—
(1) In such a special omnibus account, no securities shall have
loan value and no short sales of securities shall be carried, except
securities and short sales as to which the member shall have accepted in good faith a signed statement of the customer that he is
in turn carrying such securities and such short sales for the account
of his customers other than his partners;
(2) The maximum loan value of a registered security (other
than an exempted security) having loan value in such a special
omnibus account shall be such special maximum loan value, and
the amount to be included in the adjusted debit.balance of such
an account as the margin required for short sales shall be such special amount, as the Board shall prescribe from time to time for
special omnibus accounts in the supplement to this regulation; and
(3) If the maximum loan value of the securities in the account
shall have equalled or exceeded the adjusted debit balance of the
account after all the transactions in the account on any day within
the period specified in section 3(b), the liquidating or covering
transactions required by section 3(e) need not be effected.
(c) Special cash account.—In a special cash account, a creditor
may effect for or with any customer bona fide cash transactions in
securities in which the creditor may—
(1) purchase any security for, or sell any security to, any customer, provided funds sufficient for the purpose are already held
in the account or the purchase or sale is in reliance upon an agree


REGULATION T

7

ment accepted by the creditor in good faith that the customer will
promptly make full cash payment for such security; or
(2) sell any security for, or purchase any security from, any
customer, provided the security is held in the account or the purchase or sale is in reliance upon an agreement accepted by the
creditor in good faith that the security is to be promptly deposited
in the account.
Except as otherwise provided in this section 4(c), in case a customer
does not make full cash payment for a security purchased by him in
the account, or does not deposit in the account a security sold by him
in the account, within seven days after the date on which the security
was purchased or sold, the creditor shall promptly cancel, cover, or
otherwise liquidate, the transaction or the unsettled portion thereof.
If the security was purchased for the customer subject to a customary
"seller's option" as to the time of delivery, or if the security was purchased for, or sold to, the customer and the creditor "failed to receive"
the security at the usual time of delivery, the period referred to in the
preceding paragraph shall be five days from the day on which the creditor acting in good faith was able to obtain the security. If the security
was sold for the customer subject to a customary "seller's option" as
to the time of delivery, such period shall end with the day on which the
option expires. If the security when purchased or sold was an unissued
security, such period shall be seven days from the day on which the
security was made available by the issuer for delivery to purchasers of
the security.
If any regularly constituted committee of a national securities exchange having jurisdiction over the business conduct of its members, of
which exchange the creditor is a member or through which his transactions are effected, is satisfied that the creditor is acting in good faith in
making the application, that the application relates to a bona fide
cash transaction, and that exceptional circumstances warrant such
action, such committee, on application of the creditor, may (A) extend
any period specified in the two preceding paragraphs for one or more
limited periods commensurate with the circumstances, or (B) in the
case of the purchase of a registered or exempted security which has
been effected by the customer in the account, authorize the transfer
of the transaction to a general account or special omnibus account and
the completion of the transaction pursuant to the provisions of this
regulation relating to such accounts.
The days specified in this section 4(c) are calendar days, but if the
last day of any period specified herein is a Saturday, Sunday, or holiday, such period shall be considered to end on the next full business day.
For the purposes of this section 4(c), a creditor may, at his option, disregard any sum due by the customer not exceeding $50.



8

REGULATION T

(d) Special arbitrage account.—In a special arbitrage account, a
member of a national securities exchange may effect and finance for
any customer bona fide arbitrage transactions in securities. For the
purposes of this subsection, the term "arbitrage" means (1) a purchase or sale of a security in one market together with an offsetting
sale or purchase of the same security in a different market at as nearly
the same time as practicable, for the purpose of taking advantage of a
difference in prices in the two markets, or (2) a purchase of a security
which is, without restriction other than the payment of money, exchangeable or convertible within a reasonable time into a second security together with an offsetting sale at or about the same time of
such second security, for the purpose of taking advantage of a disparity
in the prices of the two securities.
(e) Special commodity account.—In a special commodity account,
a creditor may effect and carry for any customer transactions in
commodities.
(/) Special miscellaneous account.—In a special miscellaneous
account, a creditor may—
(1) With the approval of any regularly constituted committee
of a national securities exchange having jurisdiction over the business conduct of its members, make and maintain loans to meet the
emergency needs of any creditor;
(2) Effect and finance, for any joint adventure in which the
sole participants are the creditor and one or more members of a
national securities exchange who are registered on such exchange
as odd-lot dealers and acting as such, any transactions in securities with respect to which all participants, or all participants
other than the creditor, are so registered and so act;
(3) Effect transactions for and finance any joint adventure or
group in which the creditor participates and in which all participants are dealers (whether such participants be acting jointly
or severally), or any member thereof or participant therein, for
the purpose of facilitating the underwriting or distributing of all
or part of an issue of securities (A) not through the medium of a
national securities exchange, or (B) the distribution of which has
been approved by the appropriate committee of a national securities exchange;
(4) Effect for any customer the collection or exchange (other
than by sale or purchase) of securities deposited by the customer
specifically for such purposes, and (subject to any other applicable
provisions of law) receive from or for any customer, and pay out
or deliver to or for any customer, any money or securities;
(5) Effect and carry for any customer transactions in foreign
exchange; and



REGULATION T

9

(6) Extend and maintain credit to or for any customer without
collateral or on any collateral whatever for any purpose other than
purchasing or carrying or trading in securities.
SECTION 5. BORROWINGS BY MEMBERS, BROKERS, AND DEALERS

(a) General rule.—It is unlawful for any creditor, directly or indirectly, to borrow in the ordinary course of business as a broker or
dealer on any registered security (other than an exempted security)
except
(1) from or through a member bank of the Federal Reserve
System; or
(2) from any nonmember bank which shall have filed with the
Board an agreement which is still in force and which is in the form
prescribed by this regulation; or
(3) to the extent to which, under the provisions of this regulation, loans are permitted between members of a national securities
exchange and/or brokers and/or dealers, or loans are permitted to
meet emergency needs.
(6) Agreements of nonmember banks.—An agreement filed pursuant to section 8 (a) of the Act by a bank not a member of the Federal Reserve System shall be substantially in the form contained in
Form F. R. T-2 if the bank has its principal place of business in a
territory or insular possession of the United States, or if it has an office
or agency in the United States and its principal place of business outside the United States. The agreement filed by any other nonmember
bank shall be in substantially the form contained in Form F. R. T-l.
Any nonmember bank which has executed any such agreement may
terminate the agreement if it obtains the written consent of the Board.
Blank forms of such agreements, information regarding their filing or
termination, and information regarding the names of nonmember banks
for which such agreements are in force, may be obtained from any
Federal Reserve bank.
(c) Borrowing from other creditors.—A creditor may borrow
from another creditor in the ordinary course of business as a broker or
dealer on any registered security to the extent and subject to the terms
upon which the latter may extend credit to him in accordance with the
provisions of this regulation, and subject to any other applicable provisions of law.
SECTION 6. CERTAIN TECHNICAL DETAILS

(a) Accounts of partners.—In case a general account is the account
of a partner of the creditor, the creditor, in calculating the adjusted
debit balance of such account and the maximum loan value of the securities therein, shall disregard the partner's financial relations with the
firm as reflected in his capital and ordinary drawing accounts.



10

REGULATION T

(b) Contribution to joint adventure.—In case a general account
is the account of a joint adventure in which the creditor participates,
the adjusted debit balance of the account shall include, in addition to
the items specified in section 3(d), any amount by which the creditor's
contribution to the joint adventure exceeds the contribution which he
would have made if he had contributed merely in proportion to his
right to share in the profits of the joint adventure.
(c) Guaranteed accounts.—In case a general account maintained
by a creditor for one customer is guaranteed in writing by another customer for whom the creditor maintains a general account, the adjusted
debit balance of the guaranteed account may, at the option of the
creditor, be computed by deducting from the sum of the items specified
in section 3(d) an amount not greater than the excess of the maximum
loan value of the securities in the guarantor's general account over the
adjusted debit balance of such guarantor's account calculated without
the addition thereto prescribed by the following paragraph, provided
(1) the guarantor is not a creditor, (2) a duplicate original of the
guarantee has been filed with the secretary of a national securities exchange of which the creditor is a member or through which his transactions are effected, and (3) the guarantee permits the creditor to use
funds and securities in the guarantor's account to carry the guaranteed
account without restriction, except that the guarantee may be limited
to a specified amount and in that event the deduction shall not exceed
such amount.
In case a guarantee has served to permit in the guaranteed account
any transaction which could not otherwise have been effected in accordance with this regulation: (A) the adjusted debit balance of the
guarantor's account shall be computed by adding to the sum of the
items specified in section 3(d) an amount equal to the deduction made
pursuant to the preceding paragraph; (B) the creditor shall not subsequently decrease the amount of such deduction, or the amount of the
consequent addition to the adjusted debit balance of the guarantor's
account, unless the adjusted debit balance of the guaranteed account,
after such decrease and after all transactions in such guaranteed account on the date of such decrease, does not exceed the maximum loan
value of the securities in such guaranteed account; and (C) if the
guarantee is terminated or the amount thereof reduced, the creditor
shall require that, after all the transactions (including such termination
or reduction) on the date of such termination or reduction, the adjusted
debit balance of the guaranteed account shall not exceed the maximum
loan value of the securities in the account.
(d) Transfer of accounts.—In the event of the transfer of a general account from one creditor to another, such account may be treated
for the purposes of this regulation as if it had been maintained by the
transferee from the date of its origin: Provided, That the transferee



REGULATION T

11

accepts in good faith the signed statement of the transferor that no
cash or securities need be deposited in the account in connection with
any transaction that has been effected in the account or, in case he
finds that it is not practicable to obtain such a statement from the
transferor, accepts in good faith such a signed statement from the
customer.
In the event of the transfer of a general account from one customer
to another, such account may be treated by the creditor for the purposes of this regulation as if it had been maintained for the transferee
from the date of its origin.
(e) Reorganizations.—A creditor may, without regard to the other
provisions of this regulation, effect for a customer the exchange of any
registered or exempted security in a general account for the purpose of
participating in a reorganization or recapitalization in which the
security is involved: Provided, That if an unregistered non-exempted
security is acquired in exchange, the creditor shall not, for a period
of sixty days following such acquisition, permit the withdrawal of such
security or the proceeds of its sale from the customer's account except
to the extent that such security or proceeds could be withdrawn if the
security were a registered security.
(/) Time of receipt of funds or securities.—For the purposes of
this regulation, a creditor may, at his option (1) treat the receipt in
good faith of any check or draft drawn on a bank which in the ordinary
course of business is payable on presentation, or any order on a savings
bank with passbook attached which is so payable, as receipt of payment of the amount of such check, draft or order; (2) treat the shipment of securities in good faith with sight draft attached as receipt of
payment of the amount of such sight draft; and (3) in the case of the
receipt in good faith of written or telegraphic notice in connection with
a special omnibus account of a customer not located in the same city
that a specified security or a check or draft has been dispatched to the
creditor, treat the receipt of such notice as receipt of such security,
check or draft: Provided, however, That if the creditor receives notice
that such check, draft, order, or sight draft described in clause (1), (2)
or (3) is not paid on the day of presentation, or if such security, check
or draft described in clause (3) is not received by the creditor within
a reasonable time, the creditor shall promptly take such action as he
would have been required to take by the appropriate provisions of this
regulation if the provisions of this subsection had not been utilized.
(g) Interest, service charges, etc.—Interest on credit maintained
in a general account, communication charges with respect to transactions in the account, shipping charges, premiums on securities borrowed
in connection with short sales or to effect delivery, dividends or other
distributions due on borrowed securities, and any service charges (other
than commissions) which the creditor may impose, may be debited to



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REGULATION T

the account in accordance with the usual practice and without regard
to the other provisions of this regulation, but such items so debited
shall be taken into consideration in calculating the net credit or net
debit balance of the account.
A creditor may, without regard to the other provisions of this regulation, pay to or for a customer from a general account interest or
cash dividends collected by the creditor for such account, if such payment is made within 35 days after the day on which, in accordance
with the creditor's usual practice, such interest or dividends are
credited to the account, and if the crediting thereof has not served
in the meantime to permit in the account any purchase of securities
or other transactions which could not otherwise have been effected
in accordance with this regulation.
(h) Borrowing and lending securities.—Without regard to the
other provisions of this regulation, a creditor (1) may make a bona fide
deposit of cash in order to borrow securities (whether registered or
unregistered) for the purpose of making delivery of such securities in
the case of short sales, failure to receive securities he is required to
deliver, or other similar cases, and (2) may lend securities for such
purpose against such a deposit.
(i) Credit for clearance of securities.—The extension or maintenance of any credit which is maintained for only a fraction of a day
(that is, for only part of the time between the beginning of business
and midnight on the same day) shall be disregarded for the purposes
of this regulation, if it is incidental to the clearance of transactions in
securities directly between members or through an agency organized
or employed by the members of a national securities exchange for the
purpose of effecting such clearance.
(j) Foreign currency.—If foreign currency is capable of being converted without restriction into United States currency, a creditor acting in good faith may treat any such foreign currency in an account as
a credit to the account in an amount determined in accordance with
customary practice.
(k) Innocent mistakes.—If any failure to comply with this regulation results from a mistake made in good faith in executing a transaction, recording, determining, or calculating any loan, balance, market
price or loan value, or other similar matter, the creditor shall not be
deemed guilty of a violation of this regulation if promptly after the
discovery of the mistake he takes whatever action may be practicable
in the circumstances to remedy the mistake.
SECTION 7. MISCELLANEOUS PROVISIONS

(a) Arranging for loans by others.—A creditor may arrange for
the extension or maintenance of credit to or for any customer of such



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13

creditor by any person upon the same terms and conditions as those
upon which the creditor, under the provisions of this regulation, may
himself extend or maintain such credit to such customer, but only upon
such terms and conditions, except that this limitation shall not apply
with respect to the arranging by a creditor for a bank subject to Regulation U to extend or maintain credit on registered securities or
exempted securities.
(b) Maintenance of credit.—Except as otherwise specifically forbidden by this regulation, any credit initially extended without violation of this regulation may be maintained regardless of (1) reductions
in the customer's equity resulting from changes in market prices, (2)
the fact that any security in an account ceases to be registered or
exempted, and (3) any change in the maximum loan values or margin
requirements prescribed by the Board under this regulation. In maintaining any such credit, the creditor may accept or retain for his own
protection additional collateral of any description, including unregistered securities.
(c) Declaration as to purpose of loan.—Every extension of credit
on a registered security (other than an exempted security) shall be
deemed to be for the purpose of purchasing or carrying or trading in
securities, unless the customer shall file with the creditor a written
declaration signed by the customer which shall state the use to be made
of such credit and which shall state specifically that such credit is
neither for the purpose of purchasing or carrying or trading in securities nor for the purpose of evading or circumventing the provisions of
this regulation. In connection with any extension of credit, a creditor
may rely upon such a written declaration unless he knows the statement to be false or has information which would put a prudent man
upon inquiry and if investigated with reasonable diligence would lead
to the discovery of the falsity of the statement.
(d) Reports.—Every creditor shall make such reports as the Board
may require to enable the Board to perform the functions conferred
upon it by the Act.
(e) Additional requirements by exchanges and creditors.—Nothing in this regulation shall (1) prevent any exchange from adopting
and enforcing any rule or regulation further restricting the time or
manner in which its members must obtain initial or additional margin
in customers' accounts because of transactions effected in such accounts, or requiring such members to secure or maintain higher margins,
or further restricting the amount of credit which may be extended or
maintained by them, or (2) modify or restrict the right of any creditor
to require additional security for the maintenance of any credit, to
refuse to extend credit, or to sell any securities or property held as
collateral for any loan or credit extended by him.



APPENDIX
There are printed below certain provisions of the Securities Exchange
Act of 1934 which are pertinent to the subject matter of this regulation:
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 subscribe to or
purchase, any of the foregoing; but shall not include currency or
14




REGULATION T

15

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.
(13) The terms "buy" and "purchase" each include any contract to buy, purchase, or otherwise acquire.
(14) The terms "sale" and "sell" each include any contract to
sell or otherwise dispose of.
Sec. 3. (b) The Commission and the Board of Governors of
the Federal Reserve System, as to matters within their respective
jurisdictions, shall have power by rules and regulations to define
technical, trade, and accounting terms used in this title insofar
as such definitions are not inconsistent with the provisions of this
title.
Sec. 6. (a) Any exchange may be registered with the Commission as a national securities exchange under the terms and conditions hereinafter provided in this section, by filing a registration
statement in such form as the Commission may prescribe, containing the agreements, setting forth the information, and accompanied by the documents, below specified:
(1) An agreement (which shall not be construed as a waiver of
any constitutional right or any right to contest the validity of any
rule or regulation) to comply, and to enforce so far as is within its
powers compliance by its members, with the provisions of this
title, and any amendment thereto and any rule or regulation made
or to be made thereunder; * * *.
(b) No registration shall be granted or remain in force unless
the rules of the exchange include provision for the expulsion, suspension, or disciplining of a member for conduct or proceeding
inconsistent with just and equitable principles of trade, and declare
that the willful violation of any provisions of this title or any rule
or regulation thereunder shall be considered conduct or proceeding
inconsistent with just and equitable principles of trade.
(c) Nothing in this title shall be construed to prevent any exchange from adopting and enforcing any rule not inconsistent with
this title and the rules and regulations thereunder and the applicable laws of the State in which it is located.
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.




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REGULATION T

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) registered 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




REGULATION T

17

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.
Sec. 8. 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—
(a) To borrow in the ordinary course of business as a broker or
dealer on any security (other than an exempted security) registered on a national securities exchange except (1) from or through
a member bank of the Federal Reserve System, (2) from any
nonmember bank which shall have filed with the Board of Governors of the Federal Reserve System an agreement, which is
still in force and which is in the form prescribed by the Board,
undertaking to comply with all provisions of this Act, the
Federal Reserve Act, as amended, and the Banking Act of 1933,
which are applicable to member banks and which relate to the
use of credit to finance transactions in securities, and with such
rules and regulations as may be prescribed pursuant to such
provisions of law or for the purpose of preventing evasions thereof,
or (3) in accordance with such rules and regulations as the
Board of Governors of the Federal Reserve System may prescribe to permit loans between such members and/or brokers
and/or dealers, or to permit loans to meet emergency needs.
Any such agreement filed with the Board of Governors of the
Federal Reserve System shall be subject to termination at any
time by order of the Board, after appropriate notice and opportunity for hearing, because of any failure by such bank to
comply with the provisions thereof or with such provisions of
laws or rules or regulations; and, for any willful violation of
such agreement, such bank shall be subject to the penalties
provided for violations of rules and regulations prescribed under
this title. The provisions of sections 21 and 25 of this title shall
apply in the case of any such proceeding or order of the Board
of Governors of the Federal Reserve System in the same manner



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REGULATION T

as such provisions apply in the case of proceedings and orders
of the Commission.
(b) To permit in the ordinary course of business as a broker
his aggregate indebtedness to all other persons, including customers' credit balances (but excluding indebtedness secured by
exempted securities), to exceed such percentage of the net capital
(exclusive of fixed assets and value of exchange membership)
employed in the business, but not exceeding in any case 2,000 per
centum, as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the
protection of investors.
(c) In contravention of such rules and regulations as the Commission shall prescribe for the protection of investors to hypothecate or arrange for the hypothecation of any securities carried
for the account of any customer under circumstances (1) that
will permit the commingling of his securities without his written
consent with the securities of any other customer, (2) that will
permit such securities to be commingled with the securities of any
person other than a bona fide customer, or (3) that will permit
such securities to be hypothecated, or subjected to any lien or
claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers in respect of such securities.
(d) To lend or arrange for the lending of any securities carried
for the account of any customer without the written consent of
such customer.
Sec. 11. (d) It shall be unlawful for a member of a national
securities exchange who is both a dealer and a broker, or for any
person who both as a broker and a dealer transacts a business in
securities through the medium of a member or otherwise, to effect
through the use of any facility of a national securities exchange
or of the mails or of any means or instrumentality of interstate
commerce, or otherwise in the case of a member, (1) any transaction in connection with which, directly or indirectly, he extends
or maintains or arranges for the extension or maintenance of credit
to or for a customer on any security (other than an exempted
security) which was a part of a new issue in the distribution of
which he participated as a member of a selling syndicate or group
within six months prior to such transaction: Provided, That credit
shall not be deemed extended by reason of a bona fide delayed
delivery of any such security against full payment of the entire
purchase price thereof upon such delivery within thirty-five days
after such purchase, * * *.
Sec. 17. (b) Any broker, dealer, or other person extending
credit who is subject to the rules and regulations prescribed by the
Board of Governors of the Federal Reserve System pursuant to
this title shall make such reports to the Board as it may require
as necessary or appropriate to enable it to perform the functions
conferred upon it by this title. If any such broker, dealer, or
other person shall fail to make any such report or fail to furnish
full information therein, or, if in the judgment of the Board it is
otherwise necessary, such broker, dealer, or other person shall
permit such inspections to be made by the Board with respect to
the business operations of such broker, dealer, or other person as



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19

the Board may deem necessary to enable it to obtain the required
information.
Sec. 23. (a) The Commission and the Board of Governors of
the Federal Reserve System shall each have power to make such
rules and regulations as may be necessary for the execution of the
functions vested in them by this title, and may for such purpose
classify issuers, securities, exchanges, and other persons or matters within their respective jurisdictions. No provision of this
title imposing any liability shall apply to any act done or omitted
in good faith in conformity with any rule or regulation of the
Commission or the Board of Governors of the Federal Reserve
System, notwithstanding that such rule or regulation may, after
such act or omission, be amended or rescinded or be determined
by judicial or other authority to be invalid for any reason.
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 (or 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. 30. (a) It shall be unlawful for any broker or dealer,
directly or indirectly, to make use of the mails or of any means or
instrumentality of interstate commerce for the purpose of effecting
on an exchange not within or subject to the jurisdiction of the



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REGULATION T

United States, any transaction in any security the issuer of which
is a resident of, or is organized under the laws of, or has its principal place of business in, a place within or subject to the jurisdiction of the United States, in contravention of such rules and
regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors
or to prevent the evasion of this title.
(b) The provisions of this title or of any rule or regulation
thereunder shall not apply to any person insofar as he transacts a
business in securities without the jurisdiction of the United States,
unless he transacts such business in contravention of such rules
and regulations as the Commission may prescribe as necessary or
appropriate to prevent the evasion of this title.
Sec. 32. (a) 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 or any undertaking contained in a
registration statement as provided in subsection (d) of section 15
of this title, 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