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FED ER A L RESERVE BANK O F N EW YORK C ir c u la r N o . 6925 A p ril 4 ,1 9 7 2 INTERPRETATION OF REGULATION T To All Brokers and D e a l e r s , and Members o f N atio n al S e c u r i t ie s E xc h a n ge s, in the Se c ond F e dera l R e s e r v e D i s t r i c t: Printed below is the text of an interpretation of Regulation T, "Credit by Brokers and Dealers," adopted March 28 by the Board of Governors of the Federal R eserve System , r e lating to credit on shares of mutual funds having portfolios of exempted sec u r itie s. Additional copies of this circular w ill be furnished upon request. Alfred Hayes, President. (Reg. T) P A R T 220 - C R E D I T BY BROKERS AND D E A L E R S Credit on Mutual Fund Shares §220.125 Extending, maintaining or arrang ing credit on mutual fund shares having portfolios of exempted secu rities. (a) The Board of Governors has been asked whether a broker or dealer may e x tend, maintain, or arrange for credit in a special bond account subject to §220.4(i) on collateral consisting of shares of registered open-end investm ent companies whose port folios are made up entirely or in part of exempted secu rities. (b) The term "exempted securities" is defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. §78c(a)(12)) and generally includes federal, state, and municipal sec u r itie s. Such secu rities are eligible as collateral for extensions of credit in §220.4(i) and are entitled to good faith loan value in an account carried pursuant to that section, under §220.8(b). (c) Part 220 (Regulation T) provides that brokers and dealers may not extend, maintain, or arrange for credit to purchase any sec u rities unless the collateral for such credit co n sists of exempted secu rities or secu rities that are registered on a national secu rities exchange or appear on the Board’s OTC Margin L ist. Shares in registered open-end investment companies are not "exempted" secu rities, irresp ective of the com position of the portfolio of the company, nor are they registered on national secu rities exchanges, or included on the OTC Margin L ist. A c cordingly, such shares do not have loan value for purposes of Part 220, nor may brokers or dealers extend credit against such shares to purchase or carry any secu rities under §220.4(i) of such part. (d) The above-stated opinion is in con formity with the Board’s views expressed previously in its interpretations announced in 1952 Bulletin 1105 (12 CFR 220.109) and 1955 Bulletin 267 (12 CFR 220.112) to the effect that brokers or dealers are prohibited from arranging credit to purchase unlisted shares issued by open-en d investm ent com panies. (Interprets and applies 15 U.S.C. 78g).
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