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F ederal Reserve bank o f Dallas


C i r c u l a r No. 75-73
J u n e 5, 1975

(C red it by B r o k e r s an d Dealers)

T h e Board of G o v e rn o rs of the F e d e ra l R e s e rv e System has
p ro p o s e d a r e g u la to r y am endm ent th a t would p erm it b r o k e r s and d e a l e r s
to a s s i s t in the p r iv a te placem ent of s e c u r i t i e s .
T h e prop o sal would amend Regulation T w hich a p p lie s to c r e d it
by b r o k e r s a n d d e a l e r s for the p u r p o s e of p u r c h a s i n g o r c a r r y i n g m arg in
Inte re sted p e r s o n s a r e invited to subm it r e le v a n t d a ta , v ie w s ,
o r a r g u m e n ts c o n c e rn in g th e p ro p o s e d am endm ent in w ritin g to the S e c r e ­
t a r y , Board of G o v e rn o rs of th e Federal R e s e r v e System , W ashington, D .C .
20551, to be re c e iv e d not later th a n J u n e 30, 1975.
A copy of the p ro p o s e d am endm ent as it a p p e a r e d in the FEDERAL
REGISTER on J u n e 2, 1975, w hich specifies the conditions u n d e r w hich the
e x p a n d e d activ ity may o c c u r , is p r in t e d on the r e v e r s e of th is c i r c u l a r .
Sincerely y o u rs,
T . W. P l a n t
F i r s t V ic e P r e s i d e n t

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

E x tra ct From
VOL. 40, NO. 106,
Monday, J u n e 2, 1975,
p . 23768
[ 12 CFR 220 ]
[Beg. T]

Notice of Proposed Rulemaking

Notice Is hereby given th at the Board

of Governors proposes to amend, pursu­
an t to authority of sections 7 and 23 of
th e Securities Exchange Act of 1934 (15
UJ3.C. 78 g and w ), paragraph (a) of
§ 220.7 of R egulation T “Credit by Brok­
ers and Dealers” (12 CFR 220) so th at
the lim itations that ordinarily apply to
the “arranging” of credit by a broker or
dealer for a customer will not apply when
the credit is extended or m aintained
through the medium of the private place­
m ent of a security and th e credit also
m eets certain other tests. A broker or
dealer when arranging credit for a custo­
m er is a t present generally lim ited by
§ 220.7(a) to those terms and conditions
which he is allowed to give when extend­
ing or m aintaining credit to th at custo­
mer. The Board has had an increasing
number of requests for advice as to
whether a broker or dealer m ay arrange
for credit in circum stances which do not
appear contrary to the purposes of the
Act although they m ay be contrary to
the literal application of § 220.7(a). This
proposed amendment codifies earlier
Board interpretations and sets forth cer­
tain circum stances under which a broker
or dealer m ay arrange for credit which
he cannot extend, but which the Board
views as consistent with the purposes of
the Act. This amendment is intended to
cover two basic types of transactions in
which a broker or dealer assists in pri­
vately placing securities. In one, the se­
curity privately-placed is a debt security
and the proceeds are used to purchase
stock which is not publicly-held. In the
other, the security privately-placed is an
investm ent contract with built-in in stal­
m ent or other credit features.

It is proposed to revise § 220.7(a) as
follow s:
§ 2 2 0 .7

M iscellan eou s p rovisions.

(a) A r r a n g i n g f o r l o a n s b y o t h e r s . A
creditor may arrange for the extension
or m aintenance of credit to or for any
customer of such creditor by any person

upon the same terms and conditions as
those upon which the creditor, under the
provisions of this Part, may him self ex­
tend or m aintain such credit to such
customer, but only upon such terms and
conditions, except that this lim itation
shall not apply to arranging by a
(1) for a bank subject to Part 221 of
this Chapter (Regulation U) to extend
or m aintain credit on margin securities
or exem pted securities, or
(2) for any person to extend or m ain­
tain credit for th e purpose of purchasing
or carrying a security (including sale of
a security with installm ent payments or
other credit features) in a transaction
which is exem pt from the registration
requirements of the Securities Act of
1933 by virtue of section 4(2) of th at Act
(15 U.S.C. 77d (2)) P r o v i d e d , that:
(i) The credit extended or m aintained
will not violate the provisions of Parts
207 or 221 of this chapter; and
(ii) The credit w ill n ot be used to pur­
chase or carry a security that is publiclyheld, or, In the case of the refinancing of
an existing debt, will not be used to carry
a security that was publicly-held at any
tim e during the past two years. For the
purpose of this paragraph, a security
shall be deemed to be “publicly-held” if
it is either (a) a security of a class that
is registered, or is required to be regis­
tered at the close of the current fiscal
year of the issuer, under section 12 of
th e Act or would be required to be regis­
tered except for the exemptions provided
by paragraphs (2) (B) and (G) of sub­
section 12 (g), or ( b ) a security of a class
any portion of which was registered un­
der section 5 of the Securities Act of
1933 (15 U.S.C. 77e) and in connection
with which the issuer is required to file
periodic reports under section 15(d) of
the Act.
To aid in consideration of this m atter
by the Board, interested persons are in ­
vited to subm it relevant data, views, or
arguments concerning the proposed
amendment. Any such material should
be submitted in writing to the Secretary,
Board of Governors of the Federal R e­
serve System, W ashington, D.C. 20551,
to be received not later than June 30,
1975. Such m aterial will be made avail­
able for inspection and copying upon re­
quest, except as provided in § 261.6(a) of
the Board’s rules regarding availability
of inform ation (12 CFR 261.6(a)).





By order of the Board of Governors,
May 27,1975.
[ seal ]
G r i f f i t h L. G arwood ,
A s s is ta n t S e c re ta ry o f th e B o a r d .

[FR Doc.75—
14259 Filed 5-30-75;8:45 am ]

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