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F e d er a l R eser ve Ba n k

DALLAS, TEXAS

of

Dallas

75222

Circular No. 71-177
July 30, 1971

PROPOSED AMENDMENTS TO REGULATIONS G, T AND U
(Relating to the Foreign Bank Secrecy Act)

To All Banks, Broker/Dealers, Nonbank Lenders and
Others Concerned in the Eleventh Federal Reserve District:
The Board of Governors of the Federal Reserve System
on
July 26, 1971* proposed amendments to Regulations G, T and U (margin
requirements in certain securities transactions), pursuant to Title
III of the Foreign Bank Secrecy Act (Public
Law91-508), -whichbecame
law on
October 26, 1971*
Among other provisions, the proposals would require citi­
zens and residents of the United States to comply with applicable
margin requirements when borrowing from domestic or foreign lenders.
The proposals would also place restrictions on margin credit extended
by foreign offices and affiliates of United States banks, which are
now exempt from such restrictions.
Additional proposals, which are unrelated to Public Law 91-50&>
would provide for certain technical changes regarding short sales, and
would clarify restrictions on "clearance" transactions by banks and
by certain nonbank lenders.
Copies of the Board's press release and the proposed amend­
ments are enclosed. Interested parties who wish to comment on the
proposals should submit their views in writing to the Secretary, Board
of Governors of the Federal Reserve System, Washington, D. C. 20551;
to reach the Board not later than September 10, 1971*
Yours very truly,
P. E. Coldwell,
President
Enclosures

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

of COVf.

,

R E S E R V E

F E D E R A L

j

press

release

For immediate release

July 26, 1971

The Board of Governors of the Federal Reserve System today
proposed regulatory amendments to carry out the provisions of
Title III of the Foreign Bank Secrecy Act (Public Law 91-508 enacted
October 26, 1970) that relate to margin credit requirements.

Comments

on the proposals should be submitted to the Board by September 10.
That Act for the first time specifically requires borrowers
to comply with margin regulations in securities transactions.
regulations previously applied only to lenders.

These

This part of the Act

will go into effect with the effective date of the Board's regulatory
amendments, but in no case later than November 1, 1971.
Margin regulations are designed to prevent the excessive use
of

credit in financing securities transactions.

Regulation

T applies

to

allsecurities credit extended by brokers and dealers; Regulation U

■applies to credit by banks for the purpose of purchasing or carrying
margin stocks, while Regulation G applies to securities credit by persons
other than banks, brokers, or dealers.
Major provisions of the proposals would:
1.

Require that all U. S. citizens and residents

comply with

margin regulations when they borrow from a lender, domestic or foreign.
This provision would also apply to foreigners controlled by U. S*
borrowers or persons acting in behalf or in conjunction with a U. S.
borrower.

-2-

2.

Provide that the restrictions on borrowers apply to

credit extended, arranged or maintained after the effective date of
the amendments.

Six months after the effective date of the amend­

ments, restrictions on substitutions and withdrawals from margin
accounts would apply to credit extended after October 26, 1970.
3.

Clarify the applicability of the registration, reporting

and other requirements of Regulation G.

A U. S. person or foreigner

controlled by U. S. persons, whose office is located outside the United
States, would be required to register with the Federal Reserve Bank of
New York.
4.

Provide that foreign branches or affiliates of U. S.

broker-dealers may extend purpose credit to foreign customers without
regard to U. S. margin requirements.
5.

Impose parallel restrictions on credit extended by foreign

offices or affiliates of U. S. banks which are now exempt from margin
regulation.
6.

Provide that a foreign subsidiary of a U. S. corporation

may extend exempt credit to its foreign employes to exercise options
to buy stock in the U. S. parent.
At the same time, the Board proposed amendments that would make
several technical changes in the regulations relating to the treatment
of short sales and so-called "clearance" transactions by banks and lenders
subject to Regulation G.
A copy of the proposed amendments is attached.
-0 -

FEDERAL RESERVE SYSTEM
[12 CFR PART 207]
[REG. G]
SECURITIES CREDIT BY PERSONS OTHER THAN
BANKS, BROKERS, OR DEALERS

1.

The Board of Governors proposes to amend Part 207 (Regu­

lation G) to implement the provisions of Title III of the Financial
Recordkeeping and Currency and Foreign Transactions Reporting Act of
1970 (Pub. L. H a 91-508, October 26, 1970).

This would be

accomplished by amending § 207.1(a) and (b), § 207.2(i), § 207.3(a)
and (b), § 207.4(a) and (d), and by adding § 207.0, § 207.l(k) and
§ 207.2(k) and (1), as set forth below.
2.

The proposed amendment to paragraph (a) in § 207.1

would clarify that a person is not subject to registration under this
paragraph unless such person is a United States person, or under the
control of a United States person or acting on behalf of or in con­
junction with such person; would provide that the determination as
to whether a person has extended, maintained or arranged credit in
the minimum amount necessary to bring the person within the regis­
tration requirement shall be made as of any calendar or fiscal quarter
and would provide that a person whose principal office is not located
in any Federal Reserve district may register with the Federal Reserve
Bank of New York.
3.

The proposed amendment of paragraph (b) of § 207.1 would

provide that a regictrant whose principal office is not located in any

*

-2 Federal Reserve district

m a y

de-register with the Federal Reserve Bank

of New York.
4.

The proposed new paragraph (k) of § 207.1 would implement

the provisions of Title III of the Financial Recordkeeping and Currency
and Foreign Transactions Reporting Act of 1970 (Fub. L. No. 91-508,
October 26, 1970) by providing that customers who are United States
persons or foreign persons controlled by such persons, or acting on
behalf of or in conjunction with such persons, may not obtain credit
except in compliance with applicable margin regulations of the Board
of Governors, and that if the extender of the credit is not subject
to such regulations, the credit must comply with the provisions of
this part.

The requirements of paragraph (k) would apply to credit

extended after the effective date of the amendments, and such credit
already extended at that time would be subject to the retention and
withdrawal requirements of paragraph (j) of § 207.1 beginning 6
months after such date.
5. The

proposed amendment of

would clarify that credit extended to a

paragraph (i) of § 207.2
customer by a person whether

or not subject to the registration requirement of § 207.1(a) (for
example, by a foreign person who is not controlled by or acting in
conjunction with or on behalf of a United States person) is indirectly
securedby margin
6. The

stock if described in

that paragraph.

proposed new paragraph (k) of § 207.2 incorporates

the statutory definition of "United States person".

- 3 -

7.

The proposed new paragraph (1) of § 207.2 incorporates

the statutory definition of "foreign person controlled by a United
States person'*.
8.

The proposed amendment of paragraph (a) of § 207.3

provides that a person subject to the registration requirement of
§ 207.1(a) whose principal office is not located in a Federal Reserve
district shall file required quarterly reports with the Federal Reserve
Bank of New York.
9.

The proposed amendment of paragraph (b) of § 207.3 pro­

vides that United States persons and foreign persons controlled by
such persons who obtain, receive, or enjoy the beneficial use of any
purpose credit shall maintain such records, and that all such persons,
and all persons registered pursuant to § 207.1(a), shall file such
reports as the Board shall prescribe to enable it to perform the
functions conferred upon it by the Securities Exchange Act of 1934
(15 U.S.C. 78).
10.

The proposed new paragraph (a)(4) of § 207.4 provides

that a foreign plan-lender extending credit solely to foreign persons
is not subject to this part if any United States person who extends,
arranges, or has outstanding any credit extended to or by such foreign
plan-lender complies with the registration and reporting requirements
of §§ 207.1(a) and 207.3.
11.

The proposed amendment to paragraph (d) of § 207.4

provides that mechanical mistakes made in good faith by a customer,

- 4 as well as by a lender, shall not constitute a violation of this part
if prompt action is taken to remedy the noncompliance.
12.

At the time the proposed amendments are adopted, foot­

notes 5 & 6 in § 207.1(f) will be redesignated footnotes 7 and 8,
respectively.
To aid in the consideration by the Board of this matter,
interested persons are invited to submit relevant data, views, or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System, Washington,
D. C.

20551, to be received not later than September lty 1971.

material will be made available for inspection and copying upon
request, except as provided in § 261.6(a) of the Board*s Rules
Regarding Availability of Information.
By order of the Board of Governors, July 22, 1971.

(Signed) Kenneth A. Kenyon

Kenneth A. Kenyon
Deputy Secretary

[SEAL]

Such

SECURITIES CREDIT BY PERSONS OTHER THAN
BANKS, BROKERS, OR DEALERS

SECTION 207.0 —

SCOPE OF PART

This part contains Rules and Regulations promulgated by
the Board of Governors of the Federal Reserve System under the Secu­
rities Exchange Act of 1934 applicable to certain persons (other than
banks, brokers, and dealers) who extend, arrange, maintain, or obtain
credit.
SECTION 207.1 -- GENERAL RULE
(a)

Registration,

Every person who is a United States

person!/ or a foreign person controlled by a United States person^/
or acting on behalf of or in conjunction with such person or who
extends, arranges, or has outstanding credit of the kind described
in this paragraph in the United States and who, in the ordinary course
of his b u s i n e s s , d u r i n g any calendar (or fiscal) quarter ended
after October 20, 1967, extends or arranges for the extension of a
total of $50,000 or more or has outstanding at any time during such
quarter, a total of $100,000 or more, in credit, secured directly or
indirectly,^ in whole or in part, by collateral that includes any
margin securities,^/ unless such person is subject to Part 220 (Regu­
lation T) or Part 221 (Regulation U) of this Chapter, is subject to

1/

As defined in 5 207.2(k).

2/

As defined in 3 207.2(1).

3/

See § 207.2(b).

4/

See § 207.2(i).

5/

See § 207.2(d).

the registration requirements of this paragraph and shall, within 30
days following the end of such quarter during which the person becomes
subject to such registration requirements, register with the Board
of Governors of the Federal Reserve System by filing a statement in
conformity with the requirements of Federal Reserve Form G-l with the
Federal Reserve Bank of the district in which the principal

office

of such person is located:

person

Provided, That in the case of a

whose principal office is not located in a Federal Reserve district,
such statement shall be filed with the Federal Reserve Bank of New
York, And provided further. That in the case of credit so secured by
collateral that includes rmy OTC margin stock^j/ and/or debt secu­
rities convertible into OTC margin stock and no other margin secu­
rity, such date shall be July 8, 1969, instead of October 20, 1967.
(b)

Termination of registration.

Any person so registered

who has not, during the preceding 6 calendar months, extended or arranged
for the extension or maintenance of or had outstanding any credit
secured directly or indirectly, in whole or in part, by collateral
that includes any margin securities may apply for termination of
such registration by filing Federal Reserve Form G-2 with

the

Federal Reserve Bank of the district in which the principal

office

of such person is located:

person

Provided, That in the case of a

whose principal office is not located in a Federal Reserve district,

6/

See § 207.2(f).
counter".

r0TC stock" is stock which is traded "over the
l

- 3 -

such statement shall be filed with the Federal Reserve Bank of New
York.

A registration shall be deemed terminated when such application

is approved by the Board of Governors of the Federal Reserve System.
*

*

*

*

*

Application to customer.

(1)

9
(k)

No United States person_J

or foreign person controlled by a United States personi£^ or acting on
behalf of or in conjunction with such person shall obtain, receive, or
enjoy the beneficial use of any loan or extension of credit for the
purpose of purchasing or carrying any margin security (without regard
to whether the person extending, maintaining, or arranging the credit
is subject to this part, Part 220 (Regulation T), or Part 221 (Regu­
lation U), and without regard to whether the office or place of busi­
ness of such person is in a State or the transaction occurred in whole
or in part within a State) unless the loan or other credit transaction
is permitted in the case of credit extended, maintained, or arranged
by a person subject to this part, Part 220 (Regulation T), or Part 221
(Regulation U) or if the person extending, arranging, or maintaining
the credit is not so subject, the credit would be permitted in the

9/

As defined in § 207.2(k).

10/

As defined in § 2.07. ?(!,).

- 4 -

case of a person subject to the registration requirement of § 207.1(a)
of this part; Provided, That, in the case of credit obtained from a
person not subject to the registration requirement of § 207.1(a), the
requirement of 5 207.1(e) as to a statement of the purpose of the credit
shall not apply.
(2)

The provisions of subparagraph (1) of this paragraph

shall not apply to credit extended before ________________ [effective
date of the amendment] except that after ___________

[6 month# after

effective date] the requirements of § 207.l(j) as to withdrawals and
substitutions of collateral shall apply to credit extended after October 26,
1970.
*
SECTION 207.2

*

*

*

DEFINITIONS
*

(i)

*

*

*

*

*

The term "indirectly secured" includes, except as

provided in § 207.4(a)(3), any arrangement with the customer under
which the customer's right or ability to sell, pledge, or otherwise
dispose of margin securities owned by the customer is in any way
restricted as long as the credit remains outstanding, or under which
the exercise of such right, whether by written agreement or other­
wise, is or may be cause for acceleration of the maturity of the credit:
Provided. That the foregoing shall not apply (1) if such restriction
arises solely by virtue of an arrangement with the customer which
pertains generally to the customer's assets unless a substantial

- 5 part of such assets consists of margin securities, or (2) if the
person extending such credit in good faith has not relied upon
such securities as collateral in the extension or maintenance of
the particular credit:

A nd provided further, That the foregoing

shall not apply to stock held by the person extending such credit
only in the capacity of custodian, depositary, or trustee, or under
similar circumstances, if such person in good faith has not relied
upon such securities as collateral in the extension or maintenance
of the particular credit.
*
(k)

*

*

*

*

The term "United States person1 includes a person
1

which Is organized or exists under the laws of any State or, in the
e*se

of a natural person, a citizen or resident of the United States

a domestic estate; or a trust in which one or

more of the foregoing

persons has a cumulative direct or indirect beneficial interest in
excess of 50 per centum of the value of the trust.

i 6 *
.

(1)

The term ^foreign person controlled by a United States
'

person" includes any noncorporate entity in which United States per­
sons directly or indirectly have more than a 50 per centum beneficial
interest, and any corporation in which one or more United States
persons, directly or indirectly, own stock possessing more than 50
per centum of the total combined voting power of all classes of stock
entitled to vote, or more than 50 per centum of the total value of
shares of all classes of stock.
SECTION 207.3 -- REPORTS AND RECORDS
(a)

Every person who is registered pursuant to 5 207.1(a)

shall xvithin 30 days following the end of each succecding quarter file
a report on Federal Reserve Form G-4 with the Federal Reserve Bank
of the district in which the1 principal office of the person is located,
or in the case of a person whose principal office is not located in
a Federal Reserve district, with the Federal Reserve Bank of New York.
(b)

Every person who has registered pursuant to 5 207.1(a)

and every person described in

5

207.l(k) or

(JL)

who obtains, receives

or enjoys the beneficial use of any purpose credit shall maintain
such records and file such reports as shall be prescribed by the
Board of Governors of the Federal Reserve System to enable it to
perform the functions conferred upon it by the Securities Exchange
Act of 1934 (15 U.S.C. 78).
SECTION 2.07.4 —
(a)

* * *

MISCELLANEOUS PROVISIONS

- 7 -

(4)

A plan-lender which is not a citizen or resident of

the United States and which does not extend, arrange, or have out­
standing credit of the kind described in § 207«1(a) in the United
States (hereinafter referred to as a "foreign plan-lender") shall
not be subject to the requirements of this part if such foreign
plan-lender extends, arranges, or maintains credit solely to persons
who are not citizens or residents of the United States;

Provided, That

United States persons who extend, arrange, or have outstanding any
credit extended to or by a foreign plan-lender shall be subject to
the requirements of §§ 207.1(a) and 207.3 if such requirements would
be applicable but for this subparagraph.
*
(d)

*

*

*

Mistakes in good faith.

*
Failure to comply with this

part due to a mechanical mistake made in good faith in determining,
recording, or calculating any credit, balance, market price, or loan
value, or other similar mechanical mistakei, shall not constitute a
violation of this part if promptly after discovery of the mistake
there is taken whatever action is practicable to remedy the noncompliance.

FEDERAL RESERVE SYSTEM
[12 CFR PART 220]
[REG. T]
CREDIT BY BROKERS AND DEALERS

1.

The Board of Governors proposes to amend Part 220

(Regulation T) to implement the provisions of Title III of the
Financial Recordkeeping and Currency and Foreign Transactions
Reporting Act of 1970 (Pub. L. No. 91-508, October 26, 1970)*

This

would be accomplished by amending § 220.1(b), and by adding §§ 220.2(i)
and (j) and 720.4 ( I ) , as set forth below.
2.

The proposed new paragraph (b) of § 220.1 would implement

the provisions of Title III of the Financial Recordkeeping and Currency
and Foreign Transactions Reporting Act of 1970 (Pub. L. No. 91-508,
October 26, 1970) by providing that customers who are United States
persons or foreign persons controlled by such persons, or acting on
behalf of or in conjunction with such persons, may not obtain credit
except in compliance with applicable margin regulations of the Board
of Governors, and that if the extender of the credit is not subject
to such regulations, the credit must comply with the provisions of
Part 207 (Regulation G).

The requirements of paragraph (b) would

apply to credit extended after the effective date of the amendments,
and such credit that had already been extended at that time would be
subject to the retention and withdrawal requirements of § 220.3(b)(2)
beginning 6 months after such date.
3.

The proposed new paragraph (i) of § 220.2 incorporates

the statutory definition of "united States person".

4.

The proposed new paragraph (j) of § 220.2 incorporates

the statutory definition of "Foreign person controlled by a United
States person".
5.

The proposed new paragraph (1.) of § 270.4 would provide

a special account invhic ha foreign branch of a creditor, or an
affiliate of a creditor if all the offices of such affiliate

are

situated abroad, may, without regard to the other requirements of
this part, extend securities credit to persons who are neither United
States persons nor foreign persons controlled by or acting on behalf
or in conjunction with such persons.
6.

At the time the proposed amendments are adopted footnotes

1 through 5 will be redesignated footnotes 3 through 7, respectively.
To aid in the consideration by the Board of this matter,
interested persons are invited to submit relevant data, views, or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System, Washington
D. C. 20551, to be received not later than September 10, 1971.

Such

material will be made available for inspection and copying upon request
except as provided in § 261.6(a) of the Board*s Rules Regarding Avail­
ability of Information.
By order of the Board of Governors, July 22, 1971.

(Signed) Kenneth A. Kenyon

Kenneth A. Kenyon
Deputy Secretary
[SEAL]

CREDIT BY BROKERS AND DEALERS

SECTION 220.1--SCOPE OF FART
This part is issued by the Board of Governors of the Federal
Reserve System (hereinafter called the "Board") pursuant to the Secu­
rities Exchange Act of 1934 (called the "Act" in this part), particularly
sections 7 and 8(a) thereof (15 U.S.C. 78g, 78h(a), as amended).
(a)

Application to broker or dealer.

This part applies to

every broker or dealer, including every member of a national securities
exchange.
(b)

Application to customer.

No United States person!^ or

foreign person controlled by a United States person, or acting on behalf
of or in conjunction with such person?^, shall obtain, receive, or enjoy
the beneficial use of any loan or extension of credit for the purpose
of purchasing or carrying any margin security (without regard to whether
the person extending, maintaining, or arranging the credit is subject to
this part, Part 207 (Regulation G ) , or Part 221 (Regulation U), and
without regard to whether the office or place of business of such person
is in a State or the transaction occurred in whole or in part within a
State) unless the loan or other credit transaction is permitted in the
case of credit extended, maintained, or arranged by a person subject to
this part, Part 207 (Regulation G), or Part 221 (Regulation U ) , or if

1/

As defined in § 220.2(1).

2/

As defined in § 220.2(j).

- 2 -

the person extending, arranging or maintaining the credit is not so
subject, the credit would be permitted in the case of a person subject
to the registration requirement of § 207.1(a) of Part 207 of this
Chapter (Regulation G):

Provided« That the provisions of this para­

graph shall not apply to credit extended before __________________
[effective date of the amendment] except that after _____________
[6 months after effective date] the requirements of § 220.3(b)(2)
as to substitutions and withdrawals of collateral shall apply to
credit extended after October 26, 1970.
SECTION 220.2 -- DEFINITIONS
*
(i)

*

*

*

*

The term "United States person1 includes a person
1

organized or existing under the laws of any State or, in the case
of a natural person, a citizen or resident of the United States;
a domestic estate; or a trust in which one or more of the foregoing
persons has a cumulative direct or indirect beneficial interest in
excess of 50 per centum of the value of the trust.
(j)

The term "Foreign person controlled by a United States

person1 includes any noncorporate entity in which United States persons
1
directly or indirectly have more than a 50 per centum beneficial
interest, and any corporation in which one or more United States
persons, directly or indirectly, own stock possessing more than 50
per centum of the total combined voting power of all classes of stock
entitled to vote, or more than 50 per centum of the total value of
shares of all classes of stock.
*

*

*

- 3 SECTION 220.4 —

SPECIAL ACCOUNTS
*

'

(I.)

*

*

*

Special foreign account*

*
A creditor may, in a special

foreign account, permit a branch if the branch is situated outside
the United States, or an affiliated person if all the offices of
such affiliated person are situated outside the United States, to
purchase or carry securities for customers who are not United States
persons or foreign persons controlled by United States persons or
acting on behalf of or in conjunction with such persons.

FEDERAL RESERVE SYSTEM
[12 CFR PART 221]
[REG. U]
CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING
OR CARRYING MARGIN STOCKS

1.

The Board of Governors proposes to amend Part 221

(Regulation U) to implement the provisions of Title III of the
Financial Recordkeeping and Currency and Foreign Transactions
Reporting Act of 1970

(Pub. L. No. 91-508, October 26, 1970),

This would be accomplished by amending § 221.1(a); § 221.2(i),
§ 221.3(k), and by adding § 221.0, as set forth below.
2.

The proposed amendment of paragraph (a) of § 221.1

would add a new subparagraph (4) implementing the provisions of
Title III of the Financial Recordkeeping and Currency and Foreign
Transactions Reporting Act of 1970 (Pub. L. No. 91-508, October 26,
1970) by providing that customers who are United States persons or
foreign persons controlled by such persons, or acting on behalf of
or in conjunction with such persons, may not obtain credit except
in compliance with applicable margin regulations of the Board of
Governors, and that if the extender of the credit is not subject
to such regulations, the credit must comply with the provisions
of Part 207 (Regulation G ) .

The requirements of subparagraph (4)

would apply to credit extended after the' effective date of the
amendments, and such credit already extended at that time would be
subject to the retention and withdrawal requirements of § 221.1(b)
beginning six months after such date.

- 2 -

3.

The proposed amendment to paragraph (i) of $ 221.2

would provide that "purpose" credit extended, arranged, or maintained
by a foreign branch of a bank, or an affiliate of the bank of which
all the offices of such affiliate are situated abroad, is subject to
the requirements of this part if such credit is extended to customers
who are United States persons or foreign persons controlled by or
acting on behalf of or in conjunction with such persons.

"Purpose"

credit extended to others is not subject to the requirements of
this part.
4.

The proposed amendments to paragraph (k) of $ 221.3

would add a new subparagraph (3) incorporating the statutory
definition of "United States person"; and would add a new subparagraph
(4) incorporating the statutory definition of "Foreign person controlled
by a United States person".
5.

At the time the proposed amendments are adopted, footnote

5 will be redesignated footnote 9.
To aid in the consideration by the Board of this matter,
interested persons are invited to submit relevant data, views, or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System, Washington,
D. C. 20551, to be received not later than September 10, 1971*

Such

- 3 -

material will be made available for inspection and copying upon request,
except as provided in § 261.6(a) of the Board's Rules Regarding Avail­
ability of Information,
By order of the Board of Governors, July 22, 1971.
(Signed) Kenneth A. Kenyon
[SEAL]

____________________________________
Kenneth A. Kenyon,
Deputy Secretary.

CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING
OR CARRYING MARGIN STOCKS

SECTION 221.0 -- SCOPE OF PART
This part contains Rules and Regulations promulgated by
the Board of Governors of the Federal Reserve System under the Secu­
rities Exchange Act of 1934 applicable to banks.

This part also

applies to certain persons who obtain credit on securities from banks.
SECTION 221,1 —
(a)
(4)

*

GENERAL RULE
*

*

Application to customer.

or foreign person controlled by a United

NoUnited States person5/
Statesperson6/ or

acting

on behalf of or in conjunction with such person shall obtain, receive,
or enjoy the beneficial use of any loan or extension of credit for
the purpose of purchasing or carrying any margin stock (without
regard to whether the person extending, maintaining, or arranging the
credit is subject to this part, Part 207 (Regulation G ) , or Part 220
(Regulation T ) , and without regard to whether the office or place of
business of such person is in a State or the transaction occurred in
whole or in part within a State) unless the loan or other credit trans­
action is permitted in the case of credit extended, maintained, or
arranged by a person subject to this part, Part 207, or Part 220, or
if the person extending, arranging, or maintaining the credit is not
so subject the credit would be permitted in the case of a person sub­
ject to the registration requirement of § 207.1(a) of Part 207
(Regulation G ) ; Provided, That the provisions of subparagraph (1) of

5/
6/

As defined in § 221.3(k)(3).
As defined in § 221.3(k)(4).

- 2 -

this paragraph shall not apply to credit extended before _______________
[effective date of the amendment] except that after ________________ [6
months after effective date} the requirements of § 221.1(b) as to
substitutions and withdrawals of collateral shall apply to credit extend­
ed after October 26, 1970.
*

*

*

*

*

SECTION 221.2- EXCEPTIONS TO GENERAL RULE
*

•k

(i)

*

*

*

Any credit extended by a branch of a bank if the

branch is situated outside the United States, or by an affiliated
person of a bank if all the offices of such affiliated person are
situated outside the United States, to purchase or carry margin stocks
for customers who are not United States persons^/ or foreign persons
controlled by United States persons8/ or acting on behalf of or in
conjunction with such persons.
*

*

*

*

*

SECTION 221,3 -MISCELLANEOUS PROVISIONS
*
(k)

*

Definitions.

*
(1)

*

*

For the purposes of this

part, except as provided in subparagraphs (3) and (4) of this para­
graph unless

the context otherwise requires, the terms

the meanings

assigned to them in section 3(a) of theSecurities

Exchange Act of 1934 (15 U.S.C. 78c(a)).
*

7/
8/

*

*

As defined in § 221.3(k)(3).
As defined in § 221.3(k)(4).

herein have

- 3 (3)

The term "United States person" includes a person

organized or existing under the laws of any State or; in the case of
a natural person, a citizen or resident of the United States; a
domestic estate; or a trust in which one or more of the foregoing
persons have a cumulative direct or indirect beneficial interest in
excess of 50 per centum of the value of the trust,
(4)

The term "foreign person controlled by a United States

person" includes any noncorporate entity in which United States persons
directly or indirectly have more than a 50 per centum beneficial
interest, and any corporation in which one or more United States persons,
directly or indirectly, own stock possessing more than 50 per centum
of the total combined voting power of all classes of stock entitled
to vote, or more than 50 per centum of the total value of shares of
all classes of stock.
*

*

*

*

*

FEDERAL RESERVE SYSTEM
[12 CFR PART 207]
[REG. G]
SECURITIES CREDIT BY PERSONS OTHER THAN
BANKS, BROKERS, OR DEALERS

1.

The Board of Governors proposes to amend Part 207 (Regu­

lation G) to make certain technical changes.

This would be accomplished

by amending § 207.1(d), § 207.1(1) and § 207.2(d).
2.

The proposed amendment of paragraph (d) of § 207,1 would

clarify that securities are not eligible for the preferential margin
provided by this section unless they are debt securities.
3.

The proposed new paragraph (1) of § 207.1 would clarify

that a person subject to the registration requirement of § 207.1(a)
may not handle "clearance" for any customer of securities purchased
through a broker or dealer unless the customer deposits the amount
of the purchase price with the lender within 7 full business days,
and in any event, before delivering the security to any other person;
or in the case of sales, promptly receives from the customer the secu­
rity that has been sold, and does not accept payment for such security
sold until he has received the security from the customer.
4.

The proposed amendment of paragraph (d) of § 207.2

would clarify that a convertible preferred stock is a margin security
if the security into which such stock is convertible is such a security.

- 2 -

To aid in the consideration by the Board of this matter,
interested persons are invited to submit relevant data, views, or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System, Washington,
D. C.

20551, to be received not later than September 10, 1971.

Such

material will be made available for Inspection and copying upon request,
except as provided in § 261.6(a) of the Board*s Rules Regarding Avail­
ability of Information.
By order of the Board of Governors, July 22, 1971.

(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Deputy Secretary.

[SEAL]

SECURITIES CREDIT BY PERSONS OTHER THAN
BANKS, BROKERS, OR DEALERS

SECTION 207.1 —

GENERAL RULE
*

(d)

*

*

*

*

Credit on convertible debt securities.

(1)

A lender

may extend credit for the purpose specified In paragraph (c) of this
section on collateral consisting of any debt security (i) convertible
with or without consideration, presently or in the future, into a
margin security or (ii) carrying any warrant or right to subscribe
to or purchase such a margin security.
(2)

Credit extended under this paragraph shall be subject

to the same conditions as any other credit subject to this section
except:

(i) the entire amount of such credit shall be considered a

single credit treated separately from the single credit specified in
paragraph (g) of this section and all the collateral securing such
credit shall be considered in determining whether or not the credit
complies with this part, and (ii) the maximum loan value of the
collateral shall be as prescribed from time to time in § 207.5(b)
(the Supplement to Regulation G ) .
(3)

Any convertible debt security originally eligible as

collateral for credit extended under this paragraph shall be treated
as such as long as continuously held as collateral for such credit
even though it ceases to be convertible or to carry warrants or
rights.

- 2 -

(4)

In the event that any margin security other than a

convertible debt security is substituted for a convertible debt secu­
rity held as collateral for credit extended under this section, such
margin security and any credit extended on it in compliance with this
part shall thereupon be treated as subject to paragraph (c) of this
section and not to this paragraph and the credit extended under this
paragraph shall be reduced by an amount equal to the maximum loan
value of the security withdrawn.
*
(1)

*

Clearance credit,

*
(1)

*

*
Purchases.

No lender shall

extend any credit, whether or not such credit is secured directly or
indirectly by any margin securities, for the purpose of clearing any
unpaid purchase of a security in an account described in Part 220 of
this Chapter (Regulation T) unless the lender obtains from the customer
as promptly as possible and in any event before the expiration of 7
full business days following the date of such purchase the full amount
of the purchase price of such security (notwithstanding that the
delivery of the security may be delayed beyond the seventh day follow­
ing such date), and in no event may the lender deliver such purchased
security to any other person until he has been paid such purchase price
by the customer.
(2)

Sales.

No lender shall effect for a customer, or

knowingly assist a customer in effecting the sale of a security in

an account described in Part 220 of this Chapter (Regulation T) unless

- 3 -

the lender obtains from the customer, as promptly as possible, the
security sold, and in no event may the lender accept payment for any
such security from any other person until he has received the security
from the customer.
SECTION 207.2 -- DEFINITIONS
*
(d)
equity security

*

*

*

*

Margin security.

The term "margin security" means any

which is (1) a registered equity security, (2) an

OTC margin stock, (3) a security (i) convertible with or without
consideration, presently or in the future, into a margin security,
or (ii) carrying any warrant or right to subscribe to or purchase,
presently or in the future, a margin security, (4) any such warrant
or right, (5) a security issued by an investment company, other than
a small business investment company licensed under the Small Business
Investment Company Act of 1958 (15 U.S.C. 661), registered pursuant
to section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8),
unless at least 95 per cent of the assets of such company are con­
tinuously invested in exempted securities.— ^
*

*

*

*

11/

As defined in 15 U.S.C. 78c(a)(ll).

12/

As defined in 15 U.S.C. 78c(a)(12).

*

FEDERAL RESERVE SYSTEM
[12 CFR PART 220]
[REG. T]
CREDIT BY BROKERS AND DEALERS

1.

The Board of Governors proposes to amend Part 220

(Regulation T) to make certain technical changes.

This would be

accomplished by amending §§ 220.2(f); 220.3(a) and (d); 220.4(c)
and (j); and 220.7(c), as set forth below.
2.

The proposed new paragraph (f)(2) of § 220.2 supplies

a definition of the term "margin equity security".
3.
provides

The proposed amendment to paragraph

(a) of

that certain short sales may be effectedin the

§ 220.3
special

convertible debt security account described in § 220.4(j).
4.

The proposed amendment to paragraph

(d) of

makes aconforming change in regard to short sales to

§ 220.3

be effected

in the special convertible debt security account described in
§ 220.4(j).
5.

The proposed amendment to paragraph (c) of § 220.4

incorporates the substance of an in te r p r e ta tio n of th© Board pub­
lished at § 220.123 (36 Federal Register 2777-78 (February 10, 1971)),
6.

The proposed amendments to paragraph (j ) of § 220.4

provide that short sales of margin equity securities into which con­
vertible debt securities held in that account are convertible may
be effected in the special convertible debt security account.
7.

The proposed amendment to paragraph (c) of 5 220.7

provides that a creditor must obtain a statement of purpose in

- 2

regard to all extensions of credit made by him, other than for the
purpose of purchasing or carrying margin securities.
To aid in the consideration by the Board of this matter,
interested persons are invited to submit relevant data, views, or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System,
Washington, D, C, 20551, to be received not later than September 10,
1971,

Such material will be made available for inspection and copying

upon request except as provided in

§ 261.6(a) of the Board's Rules

Regarding Availability of Information.
By order of the Board of Governors, July 22, 1971.

(Signed) Kenneth A. Kenyon
Kenneth A, Kenyon
Deputy Secretary

[SEAL]

CREDIT BY BROKERS AND DEALERS
*
■

V
>
-

*

*

*

SECTION 220.2 -- DEFINITIONS
*
(f)

*

*

*

*

Margin security.

(1) The term "margin security1 means
1

any registered security or OTC margin stock.
(2)

The term "margin equity security1 means any margin
1

security which is an equity security.— ^
*

SECTION 220.3 —
(a)

*

*

*

*

GENERAL ACCOUNTS

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 part
of the customer's general account with the creditor, except that the
relations which § 220.4 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, and, except to the extent
provided in paragraph (b)(2) of § 220.3, all transactions in non-equity
securities, exempted securities, and in other securities having no
loan value in a general account under the provisions of § 220.3(c) and
§ 220,8 (the Supplement to Regulation T) (except unissued securities,
short sales and securities positions to offset short sales other than
those permitted in § 220.4(j)(5) of this part, purchases to cover short

4/

As defined in 15 U.S.C. 78c(a)(11).

2 -

sales, and contracts involving an endorsement or guarantee of any put,
call, or other option),
account provided for

shall be included in

by § 220.4.

During any

the appropriate special
period when such § 220.8

specifies that margin equity securities shall have no loan value in
a general account or special convertible debt security account
(sometimes referred to herein as "special convertible security account")
subject to § 220.4(j), any transaction consisting of a purchase of a
security other than a purchase of a security to reduce or close out a
short position shall be effected in the special cash account provided
for by § 220.4(c) or

in some other appropriate special account provided

for by § 220.4.
*
(d)

*

*

*

*

Adjusted debit balance.

For the purpose of this part,

the adjusted debit balance of a general account, special bond account,
or special convertible security account shall be calculated by taking
the sum of the following items:
* * *

(3)

the current market value of any securities (other than

unissued securities) sold short in the general account plus, for each
security (other than an exempted security), such amount as the Board
shall prescribe from time to time in § 220.8 (the Supplement to
Regulation T) as the margin required for such short sales, except
that such amount so prescribed in such § 220.8 need not be included

- 3 -

when there are held in the general account or special convertible debt
security account the same securities or securities exchangeable or
convertible within 90 calendar days, without restriction other than
the payment of money, into such securities sold short;
*

*

*

*

*

SECTION 220.4 -- SPECIAL ACCOUNTS
*
(c)

*

*

*

*

Special cash account. * * *

(3)

If the security when so purchased is an unissued security

the period applicable to the transaction under subparagraph (2) of
this paragraph shall be 7 days after the date on which the security
is made available by the issuer for delivery to purchasers, except that
where a portion consisting of ten per cent or more of an issue of non­
equity securities is issued pursuant to contracts entered into at the
time of the initial underwriting between the issuer and the purchasers
of such portion providing for delayed issue of non-equity securities in
amounts of $250,000 or more per contract, such period shall be 7
days after the date fixed by contract between the issuer and the pur­
chasers of such portionv

If the security when so purchased is a "when

distributed" security which is to be distributed in accordance with a
published plan, the period applicable to the transaction under sub­
paragraph (2) of this paragraph shall be 7 days after the date on which
the security is so distributed.

If the security when so purchased is

a new security issued or to be issued for the purpose of refunding
outstanding securities which mature, or are payable upon presentation

.

4

*•

for redemption, within 35 days of the data on which the new security
is made available by the issuer for delivery to purchasers, the period
applicable to the transaction under subparagraph (2) of this paragraph
shall be 7 days after such maturity or payment date; Provided, That this
sentence shall apply only to the payment of that portion of the pur­
chase price that does not exceed 103 per cent of the amount that will
be payable to the purchaser of the new security upon such maturity of,
or payment for, securities owned by him at the time of the purchase.
*

*

*

*

*

(J)

Special convertible

debt security account.

(4)

*

In the event any convertible security held in

* *
this

account is to be converted to a stock, such security shall upon con­
version be transferred to the customer's general account against a
deposit of cash or margin securities eligible for an extension of
credit in this account (counted at

their maximum loan value) equal

to atleast the maximum loan value

of the security for which

such

substitution is made, without regard to the retention requirement of
§ 220.3(b)(2).
(5)

In a special convertible debt security account the

amount of margin equity securities into which a margin debt security
held in the account is convertible may be sold short without regard
to the margin required for short sales in § 220.8(d) (Supplement to
Regulation T) , and such short position may be carried in the special
convertible debt security account in conformity with the exception
provided in § 220.3(d)(3) of this part.
*

*

*

*

*

- 5-

SECTION 220.7 -- MISCELLANEOUS PROVISIONS
*
(c)

*

*

*

*

Statement of purpose of loan.

Every extension of

credit by a creditor shall be deemed to be for the purpose of pur­
chasing or carrying or trading in securities, unless the creditor
has accepted in good faith a written statement to the contrary in
conformity with the requirements of Form F. R. T-4 executed by the
customer and executed and accepted in good faith by the creditor prior
to such extension.

The creditor shall

retain such statement in his

records for at least 3 years after such credit is extinguished.

To

accept the customer's statement in good faith, the creditor must (1)
be alert to the circumstances surrounding the extension of credit and
(2)

if he has any information which would cause a prudent man not

to accept the statement without inquiry, have investigated and be
satisfied that the customer's statement is truthful.

A creditor

may rely upon such a written statement if accepted in accordance
with this paragraph,
*

*

*

*

*

FEDERAL RESERVE SYSTEM
[12 CFR PART 221]
[REG, UI
CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR
CARRYING MARGIN STOCKS

1,

The Board of Governors proposes to amend Part 221

(Regulation U) to make certain technical changes*
accomplished by amending

§ 221.1(a);

and

This would be

221*3(k), (m), (s), and (v)

as set forth below,
2,

The proposed amendment of paragraph (a) of § 221,1 would

eliminate a superfluous reference; would add a new subparagraph
(2) clarifying that a person subject to this part may not handle
"clearance" for any customers of securities purchased through a
broker or dealer unless the customer deposits the amount of the purchase
price with the lender within 7 full business days, and in any event,
before delivering the security to any other person; or in the case
of sales promptly receives from the customer the security that has
been sold, and does not accept payment for such security sold until
he has received the security from the customer, and would renumber the
present subparagraph (2) as subparagraph (3).
3.

The proposed amendments to paragraph (k) of

§ 221.3 would

add a new subparagraph (2) for the definition of a Bank which is a
member of national securities exchange.
4.

The proposed amendments to paragraph (m) of $ 221,3

would clarify certain cross-references.

- 2 -

5.

The proposed amendments to paragraph (s) of

§ 221,3

would clarify certain cross-references.
6,

The proposed amendment to paragraph (v) of § 221.3

would clarify that a convertible preferred stock is a margin stock
if the stock into which such preferred stock is convertible is a
margin stock.
To aid in the consideration by the Board of this matter,
interested persons are invited to submit relevant data, views, or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System, Washington,
D D. C. 20551, to be received not later than

September 10, 1971.

Such

material will be made available for inspection and copying upon request,
except as provided in § 261.6(a) of the Board’s Rules Regarding Availa­
bility of Information.
By order of the Board of Governors, #uly 22, 1971.

(Signed)

Kenneth A, Kenyon

Kenneth A, Kenyon
Deputy Secretary
[SEAL]

CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING
OR CARRYING MARGIN STOCKS

SECTION 221.1 —
(a)(1)

GENERAL RULE

Purpose credit secured by stock.

Except as otherwise

provided in this part no bank shall extend any credit secured directly
or indirectlyl^/ by any stock 2/ for the purpose of purchasing or carrying
any margin stock

3/

in an amount exceeding the maximum loan value of the

collateral, as prescribed from time to time for stocks in § 221.4 (the
Supplement to Regulation U) and as determined by the bank in good faith
for credit subject to § 221*3(s) for any collateral other than stocks:
Provided, That unless held as collateral for such credit on October 20,
1967, and continuously thereafter, any collateral other than stock shall
have loan value for the purpose of this part only as collateral for a
credit which is not secured by stock, as described in § 221.3 (s), and any
collateral consisting of convertible debt securities described in
S 221*3(t) shall have loan value only for the purpose of that section,
and not for any other credit subject to this part*
(2)

Clearance credit,

(a) Purchases*

No bank shall extend

any credit, whether or not such credit is secured directly or indirectly
by any stock, for the purpose of clearing any unpaid purchase of a security
in an account described in Part 220 of this Chapter (Regulation T) unless
the bank obtains from the customer as promptly as possible and in any
event before the expiration of 7 full business days following the date

1/
2/
3/

As defined in § 221.3(c)*
As defined in § 221.3(1)*
Sometimes referred to as a "purpose credit".
See § 221.3(b)*
term "margin stock" is defined in § 221.3(v).

The

2
of such purchase the full amount of the purchase price of such security
(notwithstanding that the delivery of the security may be delayed beyond
the seventh day following such date), and in no event may the bank deliver
such purchased security to any other person until the bankhas been

paid

such purchase price by the customer*
(b)

Sales,

No bank shall effect for a customer, or knowingly

assist a customer in effecting the sale of a security in an account
described in Part 220 of this Chapter (Regulation T) unless the bank
obtains from the customer, as promptly as possible, the
and in no event may the bank accept payment for any

security sold,

such security from

any other person until it has received the security from the customer,
(3)

OTC margin stock credit extended prior to certain dates.

Credit extended prior to July 8, 1969, for the purpose of purchasing
or carrying any OTC margin stock 4/ or any debt security convertible
into such stock (and no other margin stock) is not purpose credit,
except that with respect to any OTC margin stock such date shall be
August 7, 1969, if extended to a member of a national

securities exchange

or a broker or dealer registered under section 15 of the Securities
Exchange Act of 1934 (15 U.S.C. 78o).

*

*

*

*

*

SECTION 221.3- MISCELLEANEOUS PROVISIONS

*
(c
l)

4/

Definitions.

*
(1)

*
x

x

*

*

x

As defined in
221.3(d), "OTC stock1 hereinafter refers to stock
traded "over the counter."

- 3 -

(2)

The term "bank" does not include a bank which is a member

of a national securities exchange.

*

(m)
is

*

*

Credit subject to $ 221,1

*

*

A "credit subject to

§ 221.1"

acredit which is (1) secured directly or indirectly by any

stock

(or described in

§ 221.1(a) or § 221.3(q)), (2) extended for the

purpose of purchasing or carrying any margin stock, and (3) not other­
wise excepted by this part.

*
(s)

*

*

*

*

Credit secured by collateral other than stocks.

Except as provided in

§ 221.1(a) and § 221.3(q) a bank may extend

credit for the purpose of purchasing or carrying a margin stock secured
by collateral other than stock, and, in the case of such credit, the
maximum loan value of the collateral shall be as determined by the bank
in good faith.

*
(v)

*

*

*

*

The term "margin stock" means any stock 10/ which is

(1) a stock registered on a national securities exchange, (2) an OTC
margin stock 11/, (3) a security (i) convertible with or without
consideration, presently or in the future, into a margin stock or (ii)
carrying any warrant or right to subscribe to or purchase, presently or
in the future, a margin stock, (4) any such warrant or right, (5) any
security issued by an investment company other than a small business
investment company licensed under the Small Business Investment Company

10/ As defined in § 221.3 (JL).
11/ As defined in § 221.3(d).
12/ As defined in 15 U.S.C. 78c(a)(12).

4 -

Act of 1958 (15 U.S.C. 661) registered pursuant to section 8 of the
Investment Company Act of 1940 (15 U.S.C. 80a-8), unless at least
95 per cent of the assets of such company are continuously invested
in exempted securities 12/.

127

As defined in 15 U.S.C. 78c(a)(12)

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