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F ederal

reserve bank of

Da lla s

DALLAS, TEXAS 75222

Circular No. 71-289
December 3> 1971

PAMPHLET CONTAINING MARGIN REGULATIONS
(Regulations G, T, U and X)

To All Banks, Brokers/Dealers, Regulation G
Registrants and Others Concerned in the
Eleventh Federal Reserve District:
Enclosed is a copy of a pamphlet entitled "Securities
Credit Transactions" containing Regulations G, T, U, and X, as
amended and effective November 1, 1971* The pamphlet contains
the first printing of new Regulation X in permanent form, and
for convenient reference includes the other margin Regulations
G, T, and U without substantive change.
The Supplements to Regulations G, T, and U (contain­
ing current margin requirements) have not been changed, and
previously furnished copies should be retained and filed with
the new pamphlet. In addition, it is suggested that the pam­
phlet be filed in the binder under Regulation T and that cross
reference sheets be filed under Regulations G, U, and X.
For your information, the Board of Governors has
postponed until March 1, 1972, the effective date of proposed
regulatory amendments setting forth the conditions under which
credit may be obtained without regard to initial margin require­
ments for the purpose of providing capital to broker-dealer
firms.
Yours very truly,
P. E. Coldwell

President

•Enclosure

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

BOARD OF GOVERNORS

of the
FEDERAL RESERVE SYSTEM

SECURITIES CREDIT TRANSACTIONS
REGULATION X
(12 CFR 224)
Effective November 1, 1971

REGULATION G
(12 CFR 207)
As amended effective March 30, 1971

REGULATION T
(12 CFR 220)
As amended effective May 15, 1970

REGULATION U
(12 CFR 221)
As amended effective July 10, 1971

NOVEMBER 1971

GENERAL CONTENTS
This pamphlet contains the regulations, as listed below, issued by the Board
of Governors of die Federal Reserve System relating to margin requirements
on securities credit transactions.

REGULATION X— RULES GOVERNING BORROWERS WHO OBTAIN
SECURITIES CREDIT

Page 5

REGULATION G— SECURITIES CREDIT BY PERSONS OTHER THAN
BANKS, BROKERS, OR DEALERS

Page 11

REGULATION T— CREDIT BY BROKERS AND DEALERS

Page 21

[REGULATION U— CREDIT BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING MARGIN STOCKS

Page 37

STATUTORY APPENDIX

Page 47

Any inquiry relating to Regulations X, G, and U should jte addressed to the
Federal Reserve Bank of the Federal Reserve district in which the inquiry
arises. Any inquiry relating to Regulation T should be addressed to a national
securities exchange or a national securities association of which the person
making the inquiry is a member or the facilities of which are used for bis
transactions, or, if this is not practicable, the inquiry should be dddresed to the
Federal Reserve Bank of the district in which the inquiry arises.
The forms furnished with these regulations are reduced in size and are for
information only. Copies of these forms for actual use and of other forms re­
quired by the regulations can be obtained from any Federal Reserve Bank.

DETAILED TABLE OF CONTENTS
Page
REG. X— RULES GOVERNING BORROWERS WHO
OBTAIN SECURITIES CREDIT
Sec . 224.1—Scope

P art .................................

of

Sec . 224.2— G eneral R u l e .................................
(a) Credit obtained from within the United States.
(b) Credit obtained from outside the United States

5
6
6
6

Sec . 224.3—E xemptions .. ...............................

7

Sec. 224.4— Reports

Records................................

7
7
7
7
7
7
8
8
8
8
8
8
8

Sec . 224.6— M iscellaneous Provision s .....................
(a) Innocent m ista k e ...................................................
(b) Aiding or abetting.................................................

8
8
8

F orm X -l—R ecord

9

F orm G-3—Statement

of

P urpose .........................

19

[Sec. 207.5—Supplement , containing maximum loan
values, retention requirement, and requirements for
inclusion on list of OTC margin stock, is printed
separately.]

7

Sec . 224.5—D e f in it io n s .................................................
(a) Acting on behalf of or in conjunction w ith ...
(b) Bank
.......................................................
(c) Broker/dealer .......................................................
(d) Foreign lender .....................................................
(e) G -le n d e r.................................................................
(f) Indirectly secured .................................................
(g) Lender ....................................................................
(h) Margin se cu rity .....................................................
(i) Offshore debt security..........................................
(j) Purpose c r e d it.......................................................
(k) Obtain c r e d it.........................................................
(1) United S ta te s ........................................................

Page
(e) Arranging for credit............................................ 16
(f) Combined purchase of mutual funds and in­
surance ............................................................... 16

and

of

F acts

of

C redit ...................

REG. G
—SECURITIES CREDIT BY PERSONS OTHER
THAN BANKS, BROKERS OR DEALERS
Sec . 207.1—G eneral R ule .......................................... U

(a) Registration
................................ 11
(b) Termination of registration............................... 11
(c) Definition of lender and applicability of margin
requirements
.......................................... . 11
(d) Credit on convertible debt securities................. 12
(e) Statements as to purpose ofcredit ................. 12
(f) Credit extended to person subject to
Regulation T ................................................. 12
(g) Combining purpose credit extended to the same
customer
.......................... 13
(h) Purpose and nonpurpose credit extended to the
same person . . ........................................... 13
(i) Purpose credit secured both by margin securi­
ties and by other collateral.......................... 13
(j) Withdrawals and substitutionsof collateral.. 13
(1) General rule
............................13
(2) Same-day substitution of collateral............ 13

Sec . 207.2— D efinitions ..............................................

(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)

Statutory meanings..........................................
In the ordinary course of his business.............
Purpose
...................................................
Margin security................................................
Registered equity security..............................
OTC margin stock ..........................................
Purchase and sale..............................................
Customer ..........................................................
Indirectly secured ............................................
Stock ................................................................

Sec. 207.3—R eports

and

14
14
14
14
14
14
14
15
15
15
15

Records................................ 15

Sec. 207.4— MiscellaneousProvisions........................ 15

(a) Stock option and employee stock purchase
plans...............................................................
(b) Extensions and renewals .........................
(c) Reorganization or recapitalization...................
(d) Mistakes in good faith.......................................

15

16
16
16

REG. T—CREDIT BY BROKERS AND DEALERS
Sec. 220.1—Scope

of

P art ............................................ 21

Sec . 220.2—D e f in it io n s .................................................
(a) Statutory m e an in g s..............................................
.............................................................
(b) Creditor
(c) Customer ...............................................................
(d) Registered security ...............................................
(e) OTC margin stock.................................................
(f) Margin security
.................................................
(g) Exempted secu rity .................................................
(h) Nonequity security ...............................................

21
21
21
21
21
21
22
22
22

Sec. 220.3—G eneral A ccounts ................................ 22
(a) Contents of general account................................ 22
(b) General rule
N
.................................. 22
(c) Maximum loan value and current market value 23
(d) Adjusted debit balance .................................... 24
(e) Liquidation in lieu of deposit.............................. 24
(f) Extensions of time .............................................. 24
(g) Transactions on given d ay .................................... 24
(h) Unissued securities ........ ..................................... 25
Sec . 220.4— S pecial A ccounts......................................
(a) General r u l e ...........................................................
(b) Special omnibus account......................................
(c) Special cash account..............................................
(d) Special arbitrage account ....................................
(e) Special commodity account..................................
(f) Special miscellaneous acoount...........................
(g) Specialist’s account .................................... ..
(h ) Special subscriptions account..........................
(i) Special bond account.........................................
(j) Special convertible debt securityaccount..........
(k) Special equity funding account..........................

25
25
25
26
27
27
27
28
28
29
29
29

Sec . 220.5—Borrowino by Members, Brokers, and
D ealers ...................................................
(a) General rule
.................................................
(b) Agreements of nonmember banks....................
(c) Borrowing from other creditors........................

30
30
30
30

Sec . 220.6— C ertain T echnical D etails ...................
(a) Accounts of partners...........................................
(b) Contribution to joint venture...............................
(c) Guaranteed accounts...........................................
(d) Transfer of accounts...........................................
(e) Reorganizations
.........................................
(f) Time of receipt of funds or securities................
(g) Interest, service charges, etc. ............................
(h) Borrowing and lending securities.......................
(i) Credit for clearance of securities......................
(j) Foreign c u rren c y ..................................................
(k) Innocent m istak es................................................

30
30
30
30
30
31
31
31
31
32
32
32

Sec. 220.7—M iscellaneous P rovisions ...................
(a) Arranging for loans by others.............................
(b) Maintenance of credit.........................................
(c) Statement of purpose of lo an .............................
(d) Reports .................................................................

32
32
32
32
32

Page

Page

REG. T—CREDIT BY BROKERS AND DEALERS (cont.)

(d)
(e),
(f)
(g)
(h)
(i)
(j)
(k)
(I)
(m )
(n)
(o)
(p)

220.7— M i s c e l l a n e o u s p r o v i s i o n s ( c o n t.)
(e) Additional requirements by exchanges and
creditors . . .................................................. 32
(f) Credit by insurance companies that issue
variable annuity contracts............................ 32

S ec.

F orm T-4— Statement

of

P urpose ........................ 35

220.8— S u p p l e m e n t , containing maximum loan
values, margin for short sales, retention requirement,
and requirements for iqplusion on list of OTC margin
stock, is printed separately.]
[S e c .

(q)

(r)
(s)
(t)
(u)
(v)
(w)
(x)

REG- U—
-CREDIT BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING MARGIN
STOCKS
221.1— G e n e r a l R u l e ........................................
(a) Purpose credit secured by stock........................
(b) Substitutions and withdrawals..........................
(c) Same-day transactions.......................................
(d) Single credit ru le ...............................................

S ec.

t o G e n e r a l R u l e ................

38

221.3—- M i s c e l l a n e o u s P r o v i s i o n s ....................
(a) Required statement as to stock-secured credit . .
(b) Purpose of a credit.............................................
(c) Indirectly secured .............................................

39
39
39
40

Sec.
S ec.

221.2— E x c e p t i o n s

37
37
37
38
38

OTC margin stock................................................. 40
Renewals and extensions of m aturity............... 40
Transfers ................................................................ 40
Reorganizations and recapitalizations............... 41
Mistakes in good faith.......................................... 41
Action for bank’s own protection....................... 41
Reports .................................................................. 41
Definitions ............................................................. 41
Stock ...................................................................... 41
Credit subject to § 221.1...................................... 41
Segregation of collateral .................................... 41
Specialist ............................................................... 41
Subscriptions issued to stockholders................... 42
Credit to certain lenders...................................... 42
Convertible secu rities...................................... . 42
Credit secured by collateral other than sto ck s.. 43
Credit on convertible debt securities................. 43
Arranging for credit.............................................. 43
Margin stock
.............................................. 43
OTC market maker exemption........................... 43
Combined purchase of mutual funds and in­
surance ............................................................... 44

F orm U -l—Statement

of

P urpose ......................... 45

221.4— S u p p l e m e n t , containing maximum loan
values, retention requirement, and requirements for
inclusion on list of OTC margin stock, is printed
separately.]
[S e c .

STATUTORY APPENDIX ................................................. 47

REGULATION X
(12 CFR 224)
Effective November 1,1971

RULES GOVERNING BORROWERS WHO
OBTAIN SECURITIES CREDIT*

wise wilfully and intentionally evading the pro­
visions of those regulations. When the term “ob­
tain credit” is used in this part (Regulation X) it
means “obtain, receive, or enjoy the beneficial use
of credit” and when the term “purpose credit” is
used, it means “credit for the purpose of purchas­
ing or carrying securities.” When the term “bor­
rower” is used, it means a person who obtains
credit. This part (Regulation X ) implements sec­
tion 7 (f) of the Act, and generally applies to
borrowers who are:
(a) Persons who obtain credit from within the
United States, or
(b) Those persons who obtain credit from out­
side the United States who are:
(1) United States persons,2
(2) Foreign persons who are controlled by
United States persons,3 or

SECTION 224.1— SCOPE OF PART
This Part 224 (Regulation X ) contains Rules
and Regulations promulgated by the Board of
Governors of the Federal Reserve System ( “the
Board”) under the Securities Exchange Act of
1934 as amended ( “the Act”) and applies to all
persons described below who obtain, receive, or
enjoy the beneficial use of credit for the purpose
of purchasing or carrying securities.1 For defini­
tions of technical terms see section 224.5, Parts
207, 220, and 221 (Margin Regulations G, T, and
U ) and the Statutory Appendix. The purpose of
this part (Regulation X ) is to prevent the infusion
of unregulated credit obtained both outside and
within the United States into United States securi­
ties markets in circumvention of the provisions of
the Board’s margin regulations or by borrowers
falsely certifying the purpose of a loan or other­
* This text corresponds to the Code of Federal Regula­
tions, Title 12, Chapter II, Part 224, cited as 12 CFR 224.
The words “this part,” as used herein, mean Regulation X.
1 15 U.S.C. 78g.

5

2 For definition of the term “United States person,” see
Statutory Appendix, section 7 (f)(2 )(A ).
8For definition of the term “foreign person controlled
by a Unitgd States person,” see Statutory Appendix, sec­
tion 7 (f)(2 )(C ).

REGULATION X

§ 224.2

(3)
Foreign persons acting on behalf of or G-lender shall conform to the provisions of Part
in conjunction w ith 4 United States persons.
207 (Regulation G ), except that the requirement
of section 207.1(e) as to obtaining a statement of
the purpose of the credit shall not apply.
SECTION 224.2— GENERAL RULE
(ii) Credit obtained from a foreign branch or
(a) Credit obtained from within the United
subsidiary of a broker/dealer shall conform to the
provisions of Part 220 (Regulation T ).
States. A borrower shall not obtain any purpose
credit from within the United States unless he does
(iii) Credit obtained from a foreign branch of
so in compliance with the following conditions:
a bank shall conform to the provisions of Part 221
(Regulation U ) which would apply if the credit
(1) Credit obtained from a G-lender shall con­
were obtained from the head office of the bank in
form to the provisions of Part 207 (Regulation
the United States, except that the requirement of
G ), which is hereby incorporated in this part
section 221.3(a) of Part 221 (Regulation U ) as
(Regulation X ). When the term “G-lender” is
to obtaining a statement of the purpose of the
used in this part (Regulation X ), it means a per­
credit shall not apply.
son who is not a broker/dealer or bank, who in
(iv) Credit obtained from a foreign lender shall
the ordinary course of his business extends, main­
conform to the provisions of Part 207 (Regula­
tains, or arranges credit that is secured, directly or
tion G ) which would apply if the person extend­
indirectly, in whole or in part, by collateral that
ing, arranging, or maintaining the credit were a
includes any margin securities, and who is subject
G-lender, except that the requirement of sec­
to the registration requirement of section 207.1 (a)
tion 207.1(e) of Part 207 (Regulation G ) as to
of Part 207 (Regulation G ) .
obtaining a statement of the purpose of the credit
(2) Credit obtained from a broker/dealer shall
shall not apply. When the term “foreign lender”
conform to the provisions of Part 220 (Regula­
is used in this part (Regulation X) it means any
tion T ), which is hereby incorporated in this part
person, other than a United States person, who in
(Regulation X ). When the term “broker/dealer”
the ordinary course of his business extends, main­
is used in this part (Regulation X ), it means a
tains, or arranges purpose credit outside the
person who is a broker or dealer, including every
United States and who is not a foreign branch or
member of a national securities exchange, and
subsidiary of a broker/dealer, a foreign branch of
includes a foreign branch or subsidiary of a
a bank, or a foreign branch of a G-lender.
broker/dealer.
(2) The provisions of subparagraph (1) of this
(3) Credit obtained from a bank shall con­
paragraph 224.2(b) shall not apply to credit ex­
form to the provisions of Part 221 (Regulation
tended before November 1, 1971, except that as
U ), except for section 221.2 (i). Except for such
to credit extended after October 26, 1970, the
section, Part 221 (Regulation U ) is hereby incor­
requirements as to withdrawals and substitutions
porated in this part (Regulation X ). When the
of collateral shall apply after May 1, 1972, as
term “bank” is used in this part (Regulation X ),
follows: the requirements in paragraph 207.1 (j)
it means a bank that is subject to Part 221 (Regu­
of Part 207 (Regulation G ) shall apply to credit
lation U ) .5
obtained from a foreign branch of a G-lender or
(b) Credit obtained from outside die United
from a foreign lender; the requirements in para­
States. (1) A United States person or foreign
graph 220.3(b) of Part 220 (Regulation T) shall
person controlled by a United States person or
apply to credit obtained from a foreign branch or
acting on behalf of or in conjunction with such
subsidiary of a broker/dealer; and the require­
a person shall not obtain any purpose credit6 from
ments in paragraph 221.1(b) of Part 221 (Regula­
outside the United States except in compliance
tion U ) shall apply to Credit obtained from a
with the following conditions:
foreign branch of a bank.
(i) Credit obtained from a foreign branch of a
(3) Record of credit. Every borrower subject
to this Part 224 (Regulation X ) who obtains any
* For definition of the term “acting on behalf of or in
conjunction with,” see section 224.5(a) of this part (Regu­
credit from a lender described in subdivisions (i),
lation X).
(iii), or (iv) of paragraph 2 2 4 .2 (b )(1 ), if such
BFor definition of the term “bank” meaning “bank
credit is secured directly or indirectly, in whole or
that is subject to Regulation U," see section 224.5(b) of
this part (Regulation X) and Statutory Appendix, section
in part, by collateral that includes any security,
3 (a)(6 ).
shall prepare and retain in his records, for at least
“For definition of the term “purpose credit,” see sec­
6 years after such credit is extinguished, a record
tion 224.5(j) of this part (Regulation X ).
6

REGULATION X

§§ 224.3 -224.5

SECTION 224.5— DEFINITIONS

substantially in conformity with the requirements
of Federal Reserve Form X -l.
SECTION 224.3— EXEMPTIONS
The following classes of persons shall be ex­
empted from the provisions of section 7 (f) of the
Act and this part (Regulation X ) to the extent
described below:
(a) A United States person whose permanent
residence is outside the United States, and who
does not during any calendar year obtain a total
of more than $5,000 or have outstanding at any
time during any calendar year a total of more
than- $5,000 in credit obtained outside the United
States to purchase or carry margin securities.
(b) A borrower who is not a United States
person, but is controlled by or acting on behalf
of or in conjunction with such person, who ob­
tains credit for the purpose of bona f d clearing,
ie
market making, or arbitrage transactions in off­
shore debt securities that are convertible into mar­
gin securities, except that any credit outstanding
against collateral consisting of such securities shall
be brought into conformity with the other pro­
visions of this part (Regulation X ) 7 upon the con­
version of such securities into margin securities.
(c) A borrower who is not a United States
person, but is controlled by or acting on behalf of
or in conjunction with such person, who obtains
credit from outside the United States, which bor­
rower has been exempted by the Board of Gov­
ernors of the Federal Reserve System, by Order,
from the requirements of this part (Regulation
X ), either unconditionally or upon specified terms
and conditions or for stated periods, upon a find­
ing that exceptional circumstances warrant the
granting of such an exemption, and that the ex­
emption is consonant with the purposes of sec­
tion 7 (f) of the Act and the provisions of this part
(Regulation X ).
SECTION 224.4— REPORTS AND RECORDS
Every borrower described in section 224.1 who
obtains any credit that is secured directly or in­
directly, in whole or in part, by collateral that
includes any securities, shall maintain such rec­
ords and file such reports as may be prescribed by
the Board of Governors of the Federal Reserve
System to enable it to perform the functions
conferred upon it by the Act.
7 Including Parts 207, 220, or 221 (Regulations G, T,
and U) where applicable.

7

Unless the context otherwise requires, or it is
otherwise specified herein, the terms used in and
for the purposes of this part (Regulation X ) have
the meanings given them in this section 224,5, in
sections 3(a) or 7 (f) of the Act, or in Parts 207,
220, or 221 (Regulations G, T, or U ). The rele­
vant portions of sections 3(a) and 7 (f) of the Act
are set forth in the Statutory Appendix. In the
case of inconsistency between definitions appear­
ing in this section 224.5 and those appearing in
Parts 207, 220, or 221 (Regulations G, T, or U ),
the definition appearing in the regulation that ap­
plies to the particular credit involved, whether
Parts 207, 220, or 221 (Regulations G, T, or U ),
shall prevail.
(a) The term “acting on behalf of or in con*
junction with” in reference to a foreign person
means obtaining credit for the purpose of pur­
chasing or carrying a security in which, or in the
income or gains or losses from which, a United
States person or a foreign person controlled by a
United States person has a substantial direct or
indirect beneficial interest. Absent these factors
the term does not include an interest derived
solely from the ownership of less than 50 per cent
of the outstanding capital stock issued by such
foreign person who is obtaining such credit.
(b) The ternl “bank” means a bank as defined
in section 3(a) (6) of the Act, including a foreign
branch of a bank, except that such term does not
include a bank which is a member of a national
securities exchange, a foreign affiliate of a bank,
or a foreign bank.
(c) The term “broker/dealer” nieans any
broker or dealer including every member of a
national securities exchange, and includes a for­
eign branch Or subsidiary of a broker/dealer.
(d) The term “foreign lender” means a person,
other than a United States person, who in the
ordinary course of his business extends, maintains,
or arranges purpose credit outside the United
States and who is not a foreign branch or sub­
sidiary of a broker/dealer, a foreign branch of a
bank, or a foreign branch of a G-lender.
(e) The term “G-leiider” means a person who
is not a broker/dealer or bank, who in the ordi­
nary course of his business extends, maintains, or
arranges credit that is secured, directly or in­
directly, in whole or in part, by collateral that
includes any margin securities, and who is sub­
ject to the registration requirement of section
207.1(a) of Part 207 (Regulation G ).

§ 224.6

REGULATION X

(1) Credit which is for the purpose, whether
immediate, incidental, or ultimate, of purchasing
or carrying a security is “purpose credit,” despite
any temporary application of the funds otherwise.
(2) Credit to enable the borrower to reduce or
retire indebtedness which was originally incurred
to purchase a security is for the purpose of “carry­
ing” such a security.
(3) Credit that is secured directly or indirectly,
in whole or in part, by collateral that includes any
securities, is presumed to be for the purpose of
purchasing or carrying securities, unless the bor­
rower has complied with the requirements of Part
207 (Regulation G ), Part 220 (Regulation T ), or
Part 221 (Regulation U ) as to the statement of
the purpose of a credit, if such requirements are
applicable, or in the case of credit obtained from
a foreign lender, can furnish satisfactory evidence
of the use of the credit for a purpose other than
purchasing or carrying securities.
(4) An extension of credit provided for in a
plan, program, or investment contract offered or
sold or otherwise initiated after August 31, 1969,
which provides for the acquisition both of any
securities and of goods, services, property inter­
ests, or investments.
(k) The term “obtain credit” means to obtain,
receive, or enjoy the beneficial use of credit.
(1)
The term “United States” includes any State
of the United States, the District of Columbia,
Puerto Rico, the Canal Zone, the Virgin Islands,
or any other possession of the United States.

(f) The term “indirectly secured” includes any
arrangement with the lender under which the right
or ability to sell, pledge, or otherwise dispose of
securities owned by the borrower (or by any other
person who has made the use of such securities
available to the borrower) 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 otherwise, is or may be
cause for acceleration of maturity of the credit.
The foregoing shall not apply, however—
(1) if such restriction arises solely by virtue of
an arrangement with the lender which pertains
generally to the borrower’s assets unless a sub­
stantial part of such assets consists of margin
securities, or
(2) if the lender in good faith has not relied
upon such securities as collateral in the extension
or maintenance of the particular credit, or
(3) to securities held by the lender only in the
capacity of custodian, depositary, or trustee, or
under similar circumstances, if the lender in good
faith has not relied upon such securities as col­
lateral in the extension or maintenance of the
particular credit.
(g) The term “lender” means a person who in
the ordinary course of his business extends, main­
tains, or arranges for credit, including a G-lender,
a broker/dealer, a bank, and a foreign lender.
(h) The term “margin security” shall have the
meaning of “margin security” as defined in sec­
tion 207.2(d) of Part 207 (Regulation G) if the
borrower is obtaining credit from a G-lender or
a foreign lender, the meaning of “margin security”
as defined in section 220.2(f) of Part 220 (Regu­
lation T) if the borrower is obtaining credit from
a broker/dealer, and the meaning of “margin
stock” as defined in section 221.3(v) of Part 221
(Regulation U ) if the borrower is obtaining credit
from a bank.
(i) The term “offshore debt security” as to this
part (Regulation X ) means a debt security offered
only outside the United States, the purchase of
which by a United States person would give rise
to a liability under the Interest Equalization Tax
(26 U.S.C, 4911 e s q .
te)
(j) The term <
(purpose credit” means credit for
the purpose of purchasing or carrying securities.
The purpose of a credit is determined by sub­
stance rather than form. The following are some
examples of purpose credit:

SECTION 224.6—MISCELLANEOUS
PROVISIONS
(a) Innocent mistake. An innocent mistake
made in good faith by a borrower in connection
with the obtaining of a credit shall not be deemed
to be a violation of this part (Regulation X) if
promptly after discovery of the mistake the bor­
rower takes whatever action is practicable to
remedy the non-compliance.
(b) Aiding or abetting. Any person who wil­
fully aids or abets the violation by any other per­
son of any provision of this part (Regulation X)
shall be deemed to be in violation of this part
(Regulation X ). For the purpose of this para­
graph, the term “aids or abets” shall include, but
not be limited to, counsels, commands, induces, or
procures.

8

F.R. Form X-l

SPECIMEN ONLY

11-71

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
RECORD WHICH BORROWERS ARE REQUIRED TO MAKE AND MAINTAIN
OF FACTS CONCERNING CREDIT COLLATERALIZED BY SECURITIES
WHEN SUCH CREDIT IS OBTAINED FROM
OUTSIDE THE UNITED STATES
♦PURSUANT TO REGULATION X
“RULES GOVERNING BORROWERS WHO OBTAIN SECURITIES CREDIT”
(FEDERAL RESERVE FORM X -l)
A FALSE OR DISHONEST STATEMENT BY A BORROWER ON THIS FORM OR ANY SCHEDULE
THERETO MAY BE PUNISHABLE BY FINE OR IMPRISONMENT
(U.S. CODE, TITLE 15, SECTION 78ff AND TITLE 18, SECTION 1001)
Unless specifically exempted from the provisions of Regulation X, the following borrowers must complete
this record or a record substantially in conformity with this form at or prior to the time when credit is
obtained from any source outside the United States, other than a foreign branch or subsidiary of a United
States broker or dealer who is subject to Regulation T, if the credit is secured in any way by collateral
that includes any United States security or security registered on a national securities exchange:
United States persons,
Foreign persons who are controlled by United States persons, or
Foreign persons acting on behalf of or in conjunction with United States persons.
Date credit obtained....................................................Amount of credit $......................................... ......................
Purpose of this credit (state in detail) .......................................................................................................................

Credit is secured by following securities (attach schedule including name of issuer, type or class of
securities, number of shares, and market value On date credit is obtained) ........................................................

Name and address of lender extending credit

Name and address of United States person the borrower is controlled by, or is acting on behalf of or in
conjunction with, if applicable (such person must obtain and retain a copy of the filled in form) ...............

Name, address, and occupation of any person arranging credit

The undersigned hereby certifies and affirms that to the best of. my (our) knowledge and belief the infor­
mation contained herein is true, accurate, and complete.
SIGNED ............................................................................
(M anual sig n a tu re )

SIGNED ........................................,..............................

(D a te )

(M anual sig n a tu re )

(T y p e o r p r in t n a m e )

(D ate)

(T yp e o r p r in t nam e)

Address of borrower.......................................................................................................................................................
* Copies of Regulation X may be obtained from any Federal Reserve Bank in the United States and are available at United
States Embassies and consular posts.

THIS FORM MUST BE RETAINED BY THE BORROWER AND BY ANY UNITED STATES
PERSON REQUIRED TO OBTAIN AND RETAIN A COPY FOR AT LEAST 6
YEARS AFTER THE TERMINATION OF THIS CREDIT

9

The terms used on this record have the meanings given them below; for additional defi­
nitions, please refer to section 224.5 of Regulation X, section 3(a) or 7(f) of the Securi­
ties Exchange Act of 1934 as amended, or Regulations G, T, or U issued by the Board
of Governors of the Federal Reserve System.

The term “United States person” includes a person which is organized or exists under the laws of
any State or, in the case of a natural person, citizen or resident of the United States; a domestic estate;
or a trust in which one or more of the foregoing persons has a cumulativedirect orindirectbeneficial
interest in excess of 50 per centum of the value of the trust.
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 ofstockentitled tovote, or more
than 50 per centum of the tot»l value of shares of all classes of stock.
The term “acting on behalf of or in conjunction with” in reference to a foreign person means obtain­
ing credit for the purpose of purchasing or carrying a security in which, or in the income or gains or
losses from which, a United States person or a foreign person controlled by a United States person has
a substantial direct or indirect beneficial interest. Absent these factors the term does not include an
interest derived solely from the ownership of less than 50 per cent of the outstanding capital stock
issued by such foreign person who is obtaining such credit.
The term “obtain credit” means to obtain, receive, or enjoy the beneficial use of credit.
The term “United States” includes any State of the United States, the District of Columbia, Puerto
Rico, the Canal Zone, the Virgin Islands, or any other possession of the United States.
The term “lender” means a person who in the ordinary course of his business extends, maintains, or
arranges for credit, including a G-lender, a broker/dealer, a bank, and a foreign lender.
The term “G-lender” means a person who is not a broker/dealer or bank, who in the ordinary course
of his business extends, maintains, or arranges credit that is secured, directly or indirectly, in whole
or in part, by collateral that includes any margin securities, and who is subject to the registration re­
quirement of section 207.1(a) of Part 207 (Regulation G).
The term “bank” means a bank as defined in section 3(a) (6) of the Securities Exchange Act of 1934,
including a foreign branch of a bank, except that such term does not include a bank which is a member
of a national securities exchange, a foreign affiliate of a bank, or a foreign bank.
The term “foreign lender” means a person, other than a United States person, who in the ordinary
course of his business extends, maintains, or arranges purpose credit outside the United States and who
is not a foreign branch or subsidiary of a broker/dealer, a foreign branch of a bank, or a foreign branch of
a G-lender.
The term “arranging for credit” refers to any activity in relation to the credit absent which the credit
would not be obtained or any participation indispensable and necessary to the completion of the credit
transaction.

10

REGULATION G
<12 CFR 207)
As amended effective March 30, 1971

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

SECTION 207.1— GENERAL RULE
(a)
Registration. Every person who, in the ordi­
nary course of his business,1 during any calendar
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 the
calendar 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 securi­
ties,3 unless such person is subject to Part 220
(Regulation T) or Part 221 (Regulation U ) of this
Chapter, is subject to the registration requirements
of this paragraph and shall, within 30 days following
the end of the calendar quarter during which the
person becomes subject to such registration require­
ments, register with the Board of Governors of the
Federal Reserve System by filing a statement in con­
formity 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: P o i e , That in the case of credit so
rvdd
* This text corresponds to the Code of Federal Regula­
tions, Title 12, Chapter II, Part 207, cited as 12 CFR 207.
The words "this part” as used herein, mean Regulation G.
1See § 207.2(b).

■See § 207.2(0.
*See § 207.2(d).

1
1

secured by collateral that includes any OTC margin
stock * and/or debt securities convertible into OTC
margin stock and no other margin security, 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 calen­
dar 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 Re­
serve Bank of the district in which the principal
office of such person is located. A registration shall
be deemed terminated when such application is ap­
proved by the Board of Governors of the Federal
Reserve System.
(c) Definition of lender and applicability Of mar­
gin requirements. Any person subject to the regis­
tration requirements of paragraph (a) of this section
who, in the ordinary course of his business, extends
or maintains or arranges for the extension or main­
tenance of any credit for the purpose of purchasing
or carrying any margin security (hereinafter called
4 See § 207.2(f). “OTC stock" is stock which is traded
“over the counter.”

REGULATION G

§ 207.1

“purpose credit”), if such credit is secured directly
or indirectly, in whole or in part, by collateral that
includes any such security, is a “lender” subject to
this part and shall not after February 1, i9S8, ex­
cept as provided in § 207.4(a), extend or arrange
for the extension of any purpose credit in an amount
exceeding the maximum loan value of the collateral,
as prescribed from time to time for margin securi­
ties in § 207.5 (the Supplement to Regulation G ),
or as determined by the lender in good faith for any
collateral other than margin securities: P o i e ,
rvdd
That credit extended before July 8, 1969, for the
purpose of purchasing or carrying OTC maf-gin
stock and/or debt securities convertible into such
stock shall not be deemed to be purpose credit: And
p o i e f r h r That any collateral consisting of
r v d d ute,
convertible securities described in paragraph (d) of
this section shall have loan value only as provided
in that paragraph.
(d)
Credit on convertible debt securities. (1) A
lender may extend credit for the purpose specified
in paragraph (c) of this section on collateral con­
sisting 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 (such a convertible debt security is some­
times referred to herein as a “convertible 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 bfe considered in determin­
ing 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 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.
(4) In the event that any margin security other
than a convertible security is substituted for a con­
vertible security 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 re­

12

duced by an amount equal to the maximum loan
value of the security withdrawn.
(e) Statements as to purpose of credit (1) In con­
nection with any extension of credit secured directly
or indirectly, in whole or in part, by collateral that
includes any niargin security, eVery person who is
subject to the registration requirement of paragraph
(a) of this section shall, prior to such extension, ob­
tain a statement in conformity with the requirements
of Federal Reserve Form G-3 executed by the cus­
tomer and executed and accepted in good faith by
such person. Such person shall retain such statement
in his records for at least 3 years after such credit
is extinguished. In determining whether credit is
“purpose credit”, such person may rely on the state­
ment executed by the customer if accepted in good
faith. To accept the customer’s statement in good
faith, such person must (i) be alert to the circum­
stances surrounding the credit and (ii) if he has any
further 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.
(2)
Circumstances which could indicate that
such person has not exercised reasonable diligence
in so investigating and so satisfying himself would
include, but are not limited to, facts such as that (i)
the proceeds of the credit were paid to a broker or
to a bank in connection with contemporaneous de­
livery of margin securities, whether or not payment
Was made against delivery, (ii) there were frequent
substitutions of margin securities serving as collateral
for the credit, or (iii) the amount of the credit was
disproportionate, or the terms inappropriate, to the
stated purpose.
(f) Credit extended to person subject to Regula­
tion T. (1) No lender shall extend or maintain any
credit for the purpose of purchasing or carrying any
margin security to any customer who is subject to
Part 220 of this Chapter (Regulation T) without
collateral or on collateral consisting of margin secu­
rities (other than exempted securities 8). Where the
credit is to be used in the ordinary course of busi­
ness of such customer, such credit is presumed to
be for the purpose of purchasing or carrying margin
securities unless the lender has in his records a
statement to the contrary obtained and executed in
conformity with the requirements of paragraph (e)
of this section.
(2)
The prohibition of this paragraph (f) shall
not apply to credit which is unsecured or secured by
5 As defined In 15 U.S.C. 78c(a)(12).

REGULATION G

§ 207.1

collateral other than margin securities, and which is
(i) made to a dealer0 to aid in the distribution of
securities to customers not through the medium of
a national securities exchange, or (ii) subordinated
to the claims of general creditors by a subordination
agreement approved by an appropriate committee
of a national securities exchange or by a “satisfac­
tory subordination agreement” as defined in para­
graph (c )(7 ) of Rule 15c3-l of the Securities and
Exchange Commission (17 CFR 240.15c3-l(c)
(7 )).
(3)
The Board of Governors of the Federal
Reserve System may by Order exempt from the
prohibitions of this paragraph (f) and the re­
quirements of this part, either unconditionally or
upon specified terms and conditions or for stated
periods, any loan for the purpose of making a
loan or providing capital to a person who is sub­
ject to Part 220 of this Chapter (Regulation T ),
upon a finding that the granting of such an ex­
emption is necessary or appropriate, in the public
interest or for the protection of investors; Pro­
v d d That the Securities Investor Protection
ie,
Corporation shall have certified to the Board that
such action is appropriate under the circumstances.
(g) Combining purpose credit extended to the
same customer. For the purpose of this part, except
for a credit subject to paragraph (d) of this section
and § 2 07.4(a)(2 ), the aggregate of all outstanding
purpose credit extended to a customer by a lender
after February 1, 1968, shall be considered a single
credit and, except as provided in paragraphs (d)
and (i) of this section, all the collateral securing
such a credit, whether directly or indirectly, in whole
or in part, shall be considered in determining
whether the credit complies with this part.

(h) Purpose and nonpurpose credit extended to
the same person. No lender shall after February 1,
1968, extend or arrange for the extension of any
purpose credit, or maintain or arrange for the
maintenance of any purpose credit extended after
February 1, 1968, if th6 credit is secured directly
or indirectly, ih whole or in part, by collateral that
includes any margin security which also secures,
directly or indirectly, in whole or in part, any other
credit in excess of $5,000 extended to the same cus­
tomer after February 1, 1968; and no lender shall
have outstanding at the same time to the same cus­
tomer both such purpose credit and any such other
credit: P o i e , That the prohibitions of this para­
rvdd
graph shall not apply to (i) credit extended for the
purpose of purchasing, constructing, maintaining, or
8As defined in 15 U.S.C. 78c(a)(5).

improving a dwelling which is occupied or to be
occupied by the customer as his principal residence
when such credit is secured by a first lien on such
dwelling; or (ii) credit secured by a share account
or other claim acquired by the customer from the
lender independently of the credit and payable (or
entitling the holder to a loan thereon) in a dollar
amount determined without regard to the market
value of the assets supporting the claim.

(1) Purpose credit secured both by margin securi­
ties And by other collateral. In the case of any pur­
pose credit extended or arranged after February 1,
1968, secured directly or indirectly, in whole or in
part, by any margin security, no other collateral shall
have any loan value in respect to such credit for the
purpose of this part: P o i e , h w v r That a
rvdd o e e ,
share account or other claim acquired by the cus­
tomer from the lender independently of the credit
and payable (or entitling the holder to a loan there­
on) in a dollar amount determined without regard
to the market value of the assets supporting the
claim shall have a maximum loan value as deter­
mined by the lender in good faith.

(j) Withdrawals and substitutions of collateral.
(1) Ge e a rl. Except as permitted by the next;
n r l ue
subparagraph and by § 207.4(a), while a lender
maintains any purpose credit extended aftef Feb­
ruary 1, 1968, the lender shall not at any time per-!
mit any withdrawal or substitution of collateral un­
less either (i) the credit would not exceed the
maximum loan value of the collateral after such
withdrawal or substitution, or (ii) the credit is
reduced by at least the amount by which the maxi-:
mum loan value of any collateral deposited is less
than the “retention requirement” of any collateral;
withdrawn. The retention requirement of collateral
other than margin securities is the same as its rtiaxi-j
mum loan value and the retention requirement of
collateral consisting of margin securities or debt
securities convertible into margin securities is pre4
scribed from time to time in § 207.5 (the Supple­
ment to Regulation G ) .
(2) Same-day s b t t t o o c l aea. Except
u s i u i n f o ltrl
as prohibited by § 207.4(a) a lender may permit a
substitution of margin securities effected by a pur*
chase and sale on orders executed within the same
day: P o i e , That (i) if the proceeds of the sale
rvdd
exceed the total cost of the purchase, the credit is
reduced by at least an amount equal to the retention
requirement in respect to the sale less the reten­
tion requirement in respect to the purchase, or (ii)
if the total cost of thd purchase exceeds the pro­
ceeds of the sale, the credit may be increased by an

13

REGULATION G

§ 207.2

amount no greater than the maximum loan value of
the securities purchased less the maximum loan
value of the securities sold. If the maximum loan
value of the collateral securing the credit has become
less than the amount of the credit, the amount of
the credit may nonetheless be increased if there is
provided additional collateral having maximum loan
value at least equal to the amount of increase, or
the credit is extended pursuant to § 207.4(a).

suant 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.8
(e) Registered equity security. The term “regis­
tered equity security” means any equity security
which (1) is registered on a national securities ex­
change, (2) has unlisted trading privileges 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 Securities Ex­
change Act of 1934 (15 U.S.C. 7 8 g (c )(2 )) only
to the extent necessary to render lawful any direct
or indirect extension or maintenance of credit on
such security.
(f) OTC margin stock. (1) The term “OTC
margin stock” means stock not traded on a national
securities exchange which the Board of Governors
of the Federal Reserve System has determined to
have the degree of national investor interest, the
depth and breadth of market, the availability of in­
formation respecting the stock and its issuer, and
the character and permanence of the issuer to war­
rant subjecting such security to the requirements of
this part.
(2) The Board will from time to time publish a
list of OTC margin stocks as to which the Board has
made the determinations described in subparagraph
(1) of this paragraph (f). Except as provided in
subparagraph (4) of this paragraph (f), such stocks
shall meet the requirements of § 207.5(d) (the
Supplement to Regulation G ).
(3) The Board shall from time to time remove
from the list described in subparagraph (2) of this
paragraph (f) stocks that cease to:
(i) Exist or of which the issuer ceases to exist, or
(ii) Meet substantially the provisions of sub­
paragraph (1) of this paragraph (f) and § 207.5(d)
(the Supplement to Regulation G ).
(4) The foregoing notwithstanding, the Board
may, upon its own initiative, or upon application by
any interested party, omit or remove any stock that
is not traded on a national securities exchange from
or add any such stock to such list of OTC margin
stocks, if in the judgment of the Board such action
is necessary or appropriate in the public interest.
(5) It shall be unlawful for any person to make,
or cause to be made, any representation to the effect
that the inclusion of a security on such list of OTC
margin stocks is evidence that the Board or the Se­
curities and Exchange Commission has in any way
passed upon the merits of, or given approval to,

SECTION 207.2— DEFINITIONS
For the purpose of this part, unless the context
otherwise requires:
(a) Terms herein have the meanings given them
in section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 7 8 c(a )).
(b) The term “In the ordinary course of his busi­
ness’* means occurring or reasonably expected to
occur from time to time in the course of any activity
of a person for profit or the management and pres­
ervation of property or in addition, in the case of a
person other than an individual, carrying out or in
furtherance of any business purpose.
(c) The “purpose” of a credit is determined by
substance rather than form.
(1) Credit which is for the purpose, whether
immediate, incidental, or ultimate, of purchasing or
carrying a margin security is “purpose credit”, de­
spite any temporary application of funds otherwise.
(2) Credit to enable the customer to reduce or
retire indebtedness which was originally incurred to
purchase a margin security is for the purpose of
“carrying” such a security.
(3) An extension of credit provided for in a
plan, program, or investment contract offered or
sold or otherwise initiated after August 31, 1969,
which provides for the acquisition both of any se­
curities described in paragraph (d) of this section
and of goods, services, property interests, other se­
curities, or investments, is “purpose credit.”
(d) Margin security. The term “margin security"
means any equity security7 which is (1 ) a regis­
tered equity security, (2) an OTC margin stock,
(3) a debt security (i) convertible with or without
consideration, presently or in the future, into a mar­
gin 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 Com­
pany Act of 1958 (15 U.S.C. 661), registered pur7 As defined in 15 U.S.C. 7 8 c (a )(ll).

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

14

REGULATION G

§§ 207.3-207.4

such security or any transaction therein. Any state­
ment in an advertisement or other similar communi­
cation containing a reference to the Board in con­
nection with such stocks or such list shall constitute
such an unlawful representation.
(g) Purchase and sale. (1) The term “purchase”
includes any contract to buy, purchase, or other­
wise acquire.
(2)
The term “sale” includes any contract to
sell or otherwise dispose of.
(h) The term “customer” includes any recipient
of the credit to whom credit is extended directly or
indirectly for the use of the customer, and also
includes any person engaged in a joint venture, or
as a member of a syndicate or a group, With the
customer with respect to a purpose loan.
(i) The term “indirectly secured” includes, ex­
cept 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 out­
standing, or under which the exercise of such right,
whether by written agreement or otherwise, is or
may be cause for acceleration of the maturity of
the credit: P o i e , That the foregoing shall not
rvdd
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 substan­
tial part of such assets consists of margin securities,
or (2) if the lender in good faith has not relied upon
such securities as collateral in the extension or main­
tenance of the particular credit: And p o i e
rvdd
f r h r That the foregoing shall not apply to stock
ute,
held by the lender only in the capacity of custodian,
depositary, or trustee, or under similar circum­
stances, if the lender in good faith has not relied
upon such securities as collateral in the extension or
maintenance of the particular credit.
(j) The term “stock’* includes any security com­
monly known as a stock; any voting trust certificate
or other instrument representing such a security;
any security convertible with or without considera­
tion into such security, certificate, or other instru­
ment, or carrying any warrant or right to subscribe
to or purchase such a security; or any such warrant
or right.

a report on Federal Reserve Form G-4 with the
Federal Reserve Bank of the district in which the
principal office of the lender is located.
(b)
Every person who has registered pursuant
to § 207.1(a) of this part shall maintain such
records as shall be prescribed by the Board of Gov­
ernors of the Federal Reserve System to enable it to
perform the functions conferred upon it by the Se­
curities Exchange Act of 1934 (15 U.S.C. 78).
SECTION 207.4— MISCELLANEOUS
PROVISIONS

(a)
Stock option and employee stock purchase
plans. In respect to any credit extended and main­

tained by a corporation, by a lender wholly con­
trolled and (except in the case of a lender formed
prior to February 1, 1968, or a trustee) wholly
owned by such corporation, or by a lender which
is a membership thrift organization whose member­
ship is limited to employees and former employees
of such corporation, its subsidiaries, or affiliates
(such corporations and such lenders are both some­
times referred to as “plan-lenders”), to an officer
or employee of the corporation, subsidiary, or affili­
ate thereof to finance the exercise of rights granted
such officer or employee under a stock option plan
or employee stock purchase plan adopted by the
corporation and approved by a majority of its stock­
holders to purchase margin securities of such cor­
poration, subsidiary, or affiliate,
(1)
Sections 207.1(c), (d), (f), (g), (h), (i),
and (j) of this part shall not apply (i) to any such
credit extended to finance the exercise of such rights
granted to any named officer or employee prior to
February 1, 1968 and effectively exercised by such
officer or employee prior to February 1, 1969 (with
respect to credit extended to purchase OTC margin
stock or debt securities convertible into such stock,
such dates shall be July 8, 1969, and July 8, 1970,
respectively), (ii) to any credit extended prior to
February 1, 1969, to a plan-lender pursuant to a
bona f d written commitment in existence on Feb­
ie
ruary 1, 1968, to finance the exercise of such rights
and by such plan-lender from the proceeds of such
credit to any officer or employee to finance the exer­
cise of rights granted pursuant to a stock purchase
plan under which the exercise price does not exceed
50 per cent of the market value of the stock subjcct
SECTION 207.3— REPORTS A N D RECORDS
to purchase, valued as of the offering date thereof,
(a)
Every person who is registered pursuant to or (iii) to any credit extended by a plan-lender pur­
§ 207.1(a) of this part shall within 30 days follow­
suant to a stock purchase plan or stock option which
ing the end of each succeeding calendar quarter file
is qualified or restricted under Internal Revenue

15

REGULATION G

§ 207.4

Code §§ 422, 423, or 424, to finance the exercise
of such rights granted prior to February 1, 1968.
(2) The restrictions imposed by § 207.1(c) and
(d) and § 207,5 (the Supplement to Regulation G)
on the maximum loan value of margin securities
serving as collateral for purpose credit shall not
apply to securities purchased, and serving as direct
or indirect collateral for credit extended, pursuant to
such a plan : P o i e , That
rvdd
(i) The entire amount of credit extended to any
officer or employee pursuant to this subparagraph
(2) in connection with the exercise of rights under
such plan or plans shall be considered a single credit;
(ii) At the time when credit is extended in con­
nection with a plan subject to this subparagraph,

tunity to realize monetary gain is not a “change in
his circumstances” for this purpose); and
(iv)
At such time as either of the conditions with
respect to sale, withdrawal, pledge, or other disposi­
tion of collateral specified in subdivision (iii) of this
subparagraph are satisfied the credit is thereafter
treated as a credit subject to all the requirements of
this part.
(3)
No extension of credit to a plan-lender to
finance such a plan shall be deemed to be indirectly
secured by a margin security purchased pursuant
to the plan: P o i e , That such security is not
rvdd
repledged by the plan-lender to secure such exten­
sion of credit to the plan-lender and in no event
does the person extending such credit have recourse
to such security: And p o i e f r h r That the
r v d d ute,
amount of the credit does not exceed the total
amount of credit currently extended by such planlender pursuant to such plan.
(b) Extensions and renewals. The renewal or
extension of maturity of a credit need not be
treated as the extension of a credit if the amount
of the credit is not increased except by the addition
of interest or service charges on the credit or of
taxes on transactions in connection with the credit.
(c) Reorganization or recapitalization. Nothing
in this part shall be construed to prohibit with­
drawal or substitution of securities to enable a
customer to participate in a reorganization or re­
capitalization.
(d) Mistakes in good faith. Failure to comply
with this part due to a mechanical mistake made
in good faith in determining, recording, or cal­
culating any credit, balance, market price, or loan
value, or other similar mechanical mistake, shall
not constitute a violation of this part if promptly
after discovery of the mistake the lender takes
whatever action is practicable to remedy the non­
compliance.
(e) Arranging for credit A lender may arrange
for the extension or maintenance of credit by any
person upon the same terms and conditions as
those upon which the lender, under the provisions
of this part, may himself extend or maintain such
credit, but only upon such terms and conditions,
except that this limitation shall not apply with
respect to the arranging by a lender for a bank
subject to Part 221 of this Chapter (Regulation U )
to extend or maintain credit on margin securities
or exempted securities.
(f) Combined purchase of mutual funds and
insurance. (1) An extension of purpose credit
provided for in a plan, program, or investment

(a) the plan-lender computes the “deficiency”—
the amount by which the credit exceeds the maxi­
mum loan value of the collateral as prescribed by
§ 207.5 (the Supplement to Regulation G ), and
( ) the agreement under which the credit is ex­
b
tended provides that, except as permitted by the
proviso in subdivision (iii) of this subparagraph, the
officer or employee shall, in respect to such defi­
ciency, for at least 3 years from the extension of
the credit, make equal repayments to the plan-lender
at least quarterly and equivalent to at least 20 per
cent of such deficiency per annum, or such lesser
amount as the Board of Governors of the Federal
Reserve System, upon application, may permit;
(iii) The officer or employee is not permitted
under such plan or credit agreement to sell, with­
draw, pledge, or otherwise dispose of all or any
part of such collateral until ( ) all repayments have
a
been made for ?t least the 3-year period provided in
subdivision (ii) of this subparagraph and the defi­
ciency has been repaid, or ( b) as a result of the re­
payments described in subdivision (ii) of this sub­
paragraph, and/or of a change in the current market
value of the collateral, the maximum loan value of
the collateral, as prescribed by § 207.5 (the Supple­
ment to Regulation G ), is at least equal to the credit
which remains owing from the officer or employee
to the plan-lender, whichever shall occur first: Pro­
v d d That this restriction need not apply where
ie,
such collateral is required to be sold to meet emer­
gency expenses arising from circumstances not rea­
sonably foreseeable at the time of the extension of
the credit (for this purpose such emergency expenses
shall include the death, disability, or involuntary
termination of employment of the officer or em­
ployee or some other change in his circumstances,
involving extreme hardship, not reasonably foresee­
able at the time ine credit is extended. The oppor­

16

REGULATION G

§ 207.4

contract that is registered with the Securities and
Exchange Commission under the Securities Act of
1933 (15 U.S.C. 77) and provides for the ac­
quisition both of a security issued by an invest­
ment company described in § 20 7 .2 (d )(5 ) and of
an insurance policy or contract shall be subject
to all the provisions of this part, except that, where
the credit is secured by the security and does not
exceed the premium on such policy (plus any
applicable interest), the maximum loan value of
such security shall be 40 per cent of its current
market value, as determined by any reasonable
method.
(2)
Sections 207.1(c), (d), (f), (g ), (h ), (i),
and (j) of this part shall not apply to any credit
extended to a person registered pursuant to

§ 207.1(a) who extends credit pursuant to sub­
paragraph (1) of this paragraph, P o i e , That:
rvdd
(i) the credit extended pursuant to this sub­
paragraph is secured by securities that are issued
by an investment company described in
§ 207.2(d)(5), and are carried for the account
of one or more customers under a plan, program,
or investment contract described in subparagraph
(1) of this paragraph (and the person extending
such credit receives written notice from the
recipient of the credit to this effect); and
(ii) the provisions of such plan, program, or
investment contract conform to the provisions of
Rule 15c2-l of the Securities and Exchange Com­
mission concerning hypothecation of customers’
securities (17 CFR 240.15c2-l).

[SECTION 207.5—SUPPLEMENT, containing maximum loan values, retention requirement, and requirements for in­
clusion on list of OTC margin stock, is printed separately.]

17

p . R. Form G 3
.
Rev. 6-69

SPECIMEN ONLY

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE OF AN EXTENSION OF CREDIT SECURED BY MARGIN
SECURITIES BY A PERSON SUBJECT TO REGISTRATION UNDER REGULATION G
(FEDERAL RESERVE FORM G-3)
A FALSE OR DISHONEST STATEMENT ON THIS FORM
MAY BE PUNISHABLE BY FINE OR IMPRISONMENT
(U.S. CODE, TITLE 15, SECTION 78ff AND TITLE 18, SECTION 1001)
Instructions:
(1) Please print or type (if space is inadequate attach separate sheet).
(2) The term “margin security" is defined in § 207.2(d) of Regulation G. See also § 207.2(e).
(3) Part I (3) and (4) need be filled in only if the purpose of the credit described in Part I (1) is other than to purchase
or carry margin securities.
(4) In Part II “source of valuation" need be filled in only if such source is other than regularly published information
in journal of general circulation.
(5) Part II need not be completed in the case of a credit of $5,000 or less which is not for the purpose of purchasing or
carrying margin securities. However, in such cases, P art I must be completed as if Part II were completed.

PART I (to be completed by customer ( s ) )
(1) The purpose of this credit in the amount of $

.............................. , secured in whole or in part by

the margin securities listed in Part II (A) and (B) is (describe in detail)

................................... ...........

(2)

, has outstanding, or has
(Name of person extending credit)

agreed to extend, to the undersigned, the following credits in addition to the credit described on this form
(itemize and describe briefly, including amounts and collateral if any). If none, so s t a t e ..............................

(3) Is any of the collateral listed in Part II (A) or (B) to be delivered, or has any such collateral
been delivered, from a bank, broker, dealer, or person other than the undersigned?

Yes □

No □

If yes, from whom?

Yes □

No □

............................................................

....... Against payment?

(4) Has any of the collateral listed in Part II (A) or (B) been owned less than six months?
Yes □

No □

If yes, identify all such collateral so owned.

...............

The undersigned has (have) read this form and hereby certifies and affirms that to the best of my (our)
knowledge and belief the information contained therein is true, accurate, and complete.
SIGNED

...................

...............................

(M anual sig n a tu re )

SIGNED ..........................................................................
(M anual sig n atu re)

(Date)

( P rin t o r type nam e)

( P r i n t o r type nam e)

19

(D ate)

PART II (to be completed by person extending credit)
(A)
Collateral consisting of margin securities, other than debt securities convertible into margin securi­
ties. The loan value of such securities under the current Supplement to Regulation G is
per cent.
M arket price
p e r share

Item ize sep arately by issue

No. of shares

Source of
valuation

Total m ark e t
price p e r
issue

(B) Collateral consisting of debt securities convertible into margin securities. The loan value of such
securities under the current Supplement to Regulation G is
per cent.
P a r value

M arket price

Item ize s ep arately by issue

Source of
valuation

Total m arket
pric e p e r
issue

M arket
value

Source of
valuation

Good faith
loan value

(C) Other collateral.
Describe briefly (itemize where 10 per cent o r more)

The undersigned, a person subject to registration under Regulation G, is aware that this credit secured
by margin securities may be subject to Regulation G, has read this form, has accepted the customer’s
statement on Part I in good faith as defined below*, and hereby certifies and affirms that to the
best of his knowledge and belief all the information contained therein is true, accurate, and complete.
Date

.........................

SIGNED
(M anual s ig na tu re )

( P r i n t or ty p e n am e an d title)

*
Regulation G requires that the customer's statement on this form be accepted by the person extending the credit in
good faith. Good faith requires that such person (1) must be alert to the circumstances surrounding the credit, and (2) if he
has any information which would cause a prudent man not to accept the statement without inquiry, has investigated and is
satisfied that the statement is truthful. Among the facts which would require such investigation are receipt of the statement
through the mail or from a third party.

THIS FORM MUST BE RETAINED BY THE PERSON EXTENDING THE CREDIT FOR AT
LEAST THREE YEARS AFTER THE TERMINATION OF THIS CREDIT

20

REGULATION T
(12 CFR 220)
As amended effective May 15, 1970

CREDIT BY BROKERS AND DEALERS *

and (2) includes, but is not limited to (i) 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 (ii) any joint venture 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 secu­
rities exchange; or (2) in consequence of its hav­
ing unlisted trading privileges on a national securi­
ties exchange is deemed, under the provisions of
section 12(f) of the Act (15 U.S.C. 78/), 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 (15 U.S.C. 7 8 g (c )(2 )) only to the ex­
tent necessary to render lawful any direct or in­
direct 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 securi­
ties exchange.
(e) (1) The term “OTC margin stock” 1 means
stock not traded on a national securities exchange
which the Board of Governors of the Federal Re-

SECTION 220.1— SCOPE OF PART
This part is issued by the Board of Governors of
the Federal Reserve System (hereinafter called the
“Board”) pursuant to the Securities 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), and applies to every broker
or dealer, including every member of a national
securities exchange.
SECTION 220.2— DEFINITIONS
For the purposes of this part, unless the context
otherwise requires:
(a) The terms herein have the meanings given
them in section 3(a) of the Act (15 U.S.C.
7 8 c(a )).
(b) The term “creditor” means any broker or
dealer including every member of a national secu­
rities exchange.
(c) The term “customer” (1) includes any
person, or any group of persons acting jointly, (i)
to or for whom a creditor is extending, arranging,
or maintaining any credit, or (ii) who, in ac­
cordance with the ordinary usage of the trade,
would be considered a customer of the creditor,
* This text corresponds to the Code of Federal Regula­
tions, Title 12, Chapter II, Part 220, cited as 12 CFR 220.
The words “this part,” as used herein, mean Regulation T.

21

1 “OTC stock” hereinafter refers to stock traded “over
the counter.”

REGULATION T

§ 220.3

security other than an equity security * or an
exempted security.

serve System has determined to have the degree of
national investor interest, the depth and breadth of
market, the availability of information respecting
the stock and its issuer, and the character and per­
manence of the issuer to warrant subjecting such
stock to the requirements of this part.
(2) The Board will from time to time publish a
list of OTC margin stock as to which the Board
has made the determinations described in subpara­
graph (1) of this paragraph (e). Except as pro­
vided in subparagraph (4) of this paragraph (e),
such stocks shall meet the .requirements of § 220.8
(g) (the Supplement to Regulation T ).
(3) The Board will from time to time remove
from the list described in subparagraph (2) of this
paragraph (e) stocks that cease to:
(i) Exist or of which the issuer ceases to exist,
or
(ii) Meet substantially the provisions of sub­
paragraph (1) of this paragraph (e) and of § 220.8
(g) (the Supplement to Regulation T ).
(4) The foregoing notwithstanding, the Board
may, upon its own initiative or upon application
by any interested party, omit or remove any stock
that is not traded on a national securities exchange
from or add any such stock to such list of OTC
margin stocks if in the judgment of the Board,
such action is necessary or appropriate in the pub­
lic interest.
(5) It shall be unlawful for any creditor to
make, or cause to be made, any representation to
the effect that the inclusion of a security on such
list of OTC margin stocks is evidence that the
Board or the Securities and Exchange Commission
has in any way passed upon the merits of, or given
approval to, such security or any transaction there­
in. Any statement in an advertisement or other simi­
lar communication containing a reference to the
Board in connection with such stocks or such list
shall constitute such an unlawful representation.
(f) The term “margin security” means any
registered security or OTC margin stock.
(g) The term “exempted security” has the
meaning given it in section 3(a) of the Act (15
U.S.C. 7 8 c (a )(1 2 )), 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 (15 U.S.C.
7 8 g (c )(2 )) only to the extent described in para­
graph (d)(3) of this section.
(h) The term “non-equity security” means any

SECTION 220.3— 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 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 pro­
vided for by that section may be included in the ap­
propriate 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 purchases to
cover short sales, securities positions to offset short
sales, contracts jnvplving an endorsement or guaran­
tee of any put, call, or other option), shall be in­
cluded in the appropriate special account provided
for by § 220.4. During any period when such
§ 220.8 specifics that margin equity securities shall
have no loan value in a general account or special
convertible debt security account (sometimes re­
ferred 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.
(b) General rule. (1) A creditor shall not effect
for or with any customer in a general account,
special bond account subject to § 220.4(i), or spe­
cial convertible security account any transaction
which, in combination with the other transactions
effected in such account on the same day, creates
an excess of the adjusted debit balance of such
account over the maximum loan value of the
securities in such 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 5 fujl business days follow­
ing the date of such transaction, the deposit into
such account of cash or securities in such amount
that the cash deposited plus the loan value of the
securities deposited equals or exceeds the excess so
created or the increase so caused.

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

22

REGULATION T

§ 220.3

bond account, or special convertible security ac­
count and the adjusted debit balance of such
account are provided in paragraphs (c) and (d) of
this section, and certain modifications of and ex­
ceptions to the general rule stated in this paragraph
are provided in the subsequent paragraphs of this
section and in § 220.6.
(c)
Maximum loan value and current market
value. (1) The maximum loan value of the securi­
ties in a general account, special bond account, or
special convertible security account is the sum of
the maximum loan values of the individual securi­
ties in such account, including securities (other
than unissued securities) bought for such account
but not yet debited thereto, but excluding securities
sold for such account whether or not payment has
been credited thereto.
(2) Except as otherwise provided in this para­
graph, the maximum loan value of a security in a
general account, special bond account, or special
convertible security account shall be such maxi­
mum loan value as the Board shall prescribe from
time to time in § 220.8 (the Supplement to Regula­
tion T ). No collateral other than an exempted
security or a registered non-equity security held in
such account on March 11, 1968, and continuously
thereafter, or margin equity security shall have any
loan value in a general account except that a
margin equity security eligible for a special con­
vertible security account pursuant to § 220.4(j)
shall have loan value in a general account only if
held in the account on March 11, 1968, and con­
tinuously thereafter.
(3) A warrant or certificate which evidences
only a right to subscribe to or otherwise acquire
any security and which expires within 90 days of
issuance shall have no loan value in a general
account, special bond account, or special con­
vertible security account; but, if the account con­
tains the security to the holder of which such
warrant or certificate has been issued and such
warrant or certificate is held in an appropriate
account maintained by the creditor for the cus­
tomer the current market value of such security (if
such security is a margin security) shall, for the
purpose of calculating its maximum loan value, be
increased by the current market value of such
warrant or certificate.
(4) 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

(2) Except as permitted in this subparagraph,
no withdrawal of cash or exempted or margin
securities shall be permissible if the adjusted debit
balance of the account (whether the general
account, the special bond account, or the special
convertible security account) would exceed the
maximum loan value of the securities in such
account after such withdrawal. The exceptions are
available only in the event no cash or securities
need to be deposited in such account in connec­
tion with a transaction on a previous day and none
would need to be deposited thereafter in connec­
tion with any withdrawal of cash or securities on
the current day. The permissible exceptions are (i)
registered non-equity securities or exempted securi­
ties held in the general account on March 11,
1968, and continuously thereafter may be with­
drawn upon the deposit in the account of cash
(or margin equity securities counted at their maxi­
mum loan value) at least equal to the “retention
requirement” of such withdrawn securities, or (ii)
except as provided in (i) of this subparagraph,
securities having loan value in the general account,
the special bond account, or the special convertible
security account may be withdrawn upon the de­
posit in such account of cash or securities having
loan value in such account counted at the maxi­
mum loan value at least equal to the “retention re­
quirement” of those securities, or (iii) cash may be
withdrawn upon the deposit in the general account,
the special bond account, or the special convertible
security account of securities having a maximum
loan value in such account at least equal to the
amount of cash withdrawn, or (iv) upon the sale
(other than the short sale) of securities having
loan value in the general account, special bond
account, or special convertible security account
there may be withdrawn in cash an amount equal
to the difference between the current market value
of the securities sold and the “retention require­
ment” of such securities, or (v) upon the sale
(other than the short sale) of a registered non­
equity security or an exempted security that was
held in the general account on March 11, 1968,
and continuously thereafter there may be with­
drawn in cash an amount equal to the difference
between the current market value of the securities
sold and the “retention requirement” of those
securities as prescribed in § 220.8 (the Supplement
to Regulation T ) .
(3) Rules for computing the maximum loan
value of the securities in a general account, special

23

REGULATION T

§ 220.3

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 purpose of
this part, the adjusted debit balance of a general
account, special bond account, or special con­
vertible security account shall be calculated by
taking the sum of the following items:
(1) the net debit balance, if any, of such
account;
(2) the total cost of any securities (other than
unissued securities) bought for such account but
not yet debited thereto;
(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 when there are held in the general account
the same securities or securities exchangeable or
convertible within 90 calendar days, without re­
striction other than the payment of money, into
such securities sold short;
(4) the amount of margin specified by paragraph
(h) of this section for every net commitment in such
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 re­
quired by the creditor in connection with his en­
dorsement or guarantee of any put, call, or other
option;
and deducting there from the sum of the following
items:
(6) the net credit balance, if any, of such ac­
count; and
(7) the net proceeds of sale of any securities
(other than unissued securities) sold for such ac­
count but for which payment has not yet been
credited thereto.
In case such account is the account of a partner of
the creditor or the account of a joint venture in
which the creditor participates, tjie adjusted debit
balance shall be computed according to the forego­

24

ing rule and the supplementary rules prescribed in
§ 220.6(a) and (b).
(e) Liquidation in lieu of deposit.3 In any case
in which the deposit required by paragraph (b) of
this section, or any portion thereof, is not obtained
by the creditor within the 5-day period specified
therein, margin non-exempted securities shall be
sold (or, to the extent that there are insufficient
margin non-exempted securities in the general ac­
count, special bond account, or special convertible
security account other liquidating transactions shall
be effected in such account), prior to the expiration
of such 5-day period, in such amount that the re­
sulting decrease in the adjusted debit balance of such
account exceeds, by an amount at least as great as
such required deposit or the undeposited portion
thereof, the “retention requirement” of any margin
or exempted securities sold: P o i e , That a credi­
rvdd
tor is not required to sell securities or to effect other
liquidating transactions specified by this paragraph
in an amount greater than necessary to eliminate the
excess of the adjusted debit balance of such account
over the maximum loan value of the securities
remaining in such account after such liquidation.
(f) Extensions of time. In exceptional cases, the
5-day period specified in paragraph (b) of this sec­
tion may, on application of the creditor, be extended
for one or more limited periods commensurate with
the circumstances (1) by any regularly constituted
committee of a national securities exchange having
jurisdiction over the business conduct of its mem­
bers, of which exchange the creditor is a member or
through which his transactions are effected, or (2)
in instances where the procedure described above is
not readily available or appropriate, by a committee
of a national securities association: P o i e , That
rvdd
such committee is satisfied that the creditor is act­
ing in good faith in making the application and that
the circumstances are in fact exceptional and war­
rant such action.
(g) Transactions on given day. For the purposes
of paragraph (b) of this section, the question of
whether or not an excess of the adjusted debit bal­
ance of a general account, special bond account, or
special convertible security account over the maxi­
mum loan value of the securities in such account is
created or increased on a given day shall be deter 3 This requirement relates to the action to be taken when
a customer fails to make the deposit required by § 220.3(b),
and it is not intended to countenance on the part of cus­
tomers the practice commonly known as “free-riding,” to
prevent which fhe principal national securities exchanges
have adopted certain rules. See the rules of such exchanges
and § 220.7(e).

REGULATION T

§ 220.4

mined on the basis of all the transactions in the
account on such day exclusive of any deposit of
cash, deposit of securities, covering transaction, or
other liquidation that has been effected on such day,
pursuant to the requirement of paragraphs (b) or
(e) of this section, in connection with a transaction
on a previous day. In any case in which an excess
so created, or increase so caused, by transactions on
a given day does not exceed $100, the creditor need
not obtain the deposit specified therefor in subpara­
graph (b) (1) of this section. Any transaction which
serves to meet the requirements of paragraph (e) of
this section or otherwise serves to permit any off­
setting transaction in an account shall, to that ex­
tent, be unavailable to permit any other transaction
in such account. For the purposes of this part (Reg­
ulation T ), if a security has maximum loan value
under subparagraph (c )(1 ) of this section in a
general account, a sale of the same security (even
though not the same certificate) in such account
shall be deemed to be a long sale and shall not be
deemed to be or treated as a short sale.
(h)
Unissued securities. (1) The amount to be
included in the adjusted debit balance of a general
account, special bond account, or special convertible
security 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 maxiiriuin loan value which
such net amount of securities would have if they
were issued margin securities held in such account;
and the amount to be so included as the margin re­
quired for a net short commitment in unissued se­
curities shall be the ambunt 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 such account: P o i e , That no
rvdd
amount need be included as margin for a net short
commitment in unissued securities when there are
held in such 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.
(2)
Whenever a creditor, pursuant to a purchase
of an unissued security for a customer, receives an
issued security which is not a margin or exempted
security, the creditor shall treat as the margin re­
quired for such purchase, any payment by the cus­
tomer for such issued security as a transaction (other
than a withdrawal) which increases the adjusted
debit balance of a general account, special bond ac­
count, or special convertible security account by the
amount of the payment minus the amount required

25

to be included in the adjusted debit balance of such
account, at the time of and in connection with the
purchase of the unissued security.
SECTION 220.4— SPECIAL ACCOUNTS
(a) General rule. (1) Pursuant to this section, a
creditor may establish for any custottier one or more
special accounts,
(2) Each such special account shall be recorded
separately and shall be confined to the transactions
and relations specifically authorized for such ac­
count by the appropriate paragraph 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.
(3) A special account established pursuant to
this section shall not be used in any way for the pur­
pose of evading or circumventing any of the provi­
sions of this part. 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, special bond account subject to
§ 220.4(i), or special convertible security account
subject to § 220.4(j).
(4) The only other conditions to which transac­
tions in such special accounts shall be subject under
the provisions of this part shall be such conditions
as are specified in the appropriate paragraph of this
section and in §§ 220.2, 220.6, 220.7, or 220.8,
except insofar as § 220.3 applies to §§ 220.4(i),
and (j).
(b) Special omnibus account In a special omni­
bus account, a member of a national securities ex­
change may effect and finance transactions for
another member of a national securities exchange or
a broker or dealer registered with the Securities and
Exchange Commission under section 15 of the Se­
curities Exchange Act of 1934 (15 U.S.C. 78o)
from whom the member receives (1) written notice,
pursuant to a rule of the Securities and Exchange
Commission concerning the hypothecation of cus­
tomers’ securities by brokers or dealers (Rule 8c-l
(17 CFR 240.8c-1) or Rule 15c2-l (17 CFR
240.15c2-l) ), to the effect that all securities car­
ried in the account will be carried for the account
of the customers < the broker or dealer and (2)
?f
writteh notice that any short sales effected in the
account will be short sales made in behalf of the
customers of the broker or dealer other than his
partners. No substitutions of collateral securing
credit extended to a brdker or dealer not described

REGULATION T

§ 220.4

in the preceding sentence shall be permitted after
October 6, 1969, and no such credit shall be main­
tained after July 8, 1970.
(c)
Special cash account. (1) In a special cash
account, a creditor may effect for or with any cus­
tomer bona f d cash transactions in securities in
ie
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 pur­
chase or sale is in reliance upon an agreement ac­
cepted by the creditor in good faith that the cus­
tomer will promptly make full cash payment for the
security and that the customer does not contemplate
selling the security prior to making such payment.
(ii)
Sell any security for, or purchase any se­
curity from, any customer, provided the security is
held in the account or the creditor is informed that
the customer or his principal owns the security and
the purchase or sale is in reliance upon an agree­
ment accepted by the creditor in good faith that the
security is to be promptly deposited in the account.
(2) In case a customer purchases a security
(other than an exempted security) in the special
cash account and does not make full cash pay­
ment for the security within 7 days after the date
on which the security is so purchased, the creditor
shall, except as provided in subparagraphs (3 )—
(7)
of this paragraph, promptly cancel or otherwise
liquidate the transaction or the unsettled portion
thereof.
(3) If the security when so purchased is an un­
issued security, the period applicable to the trans­
action 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 pur­
chasers. If the security when so purchased is a
“when distributed” security which is to be dis­
tributed 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 dis­
tributed. 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 to be payable upon presentation for redemp­
tion, within 35 days of the date on which the new
security is made available by the issuer for delivery
to purchasers, the period applicable to the trans­
action under subparagraph (2) of this paragraph
shall be 7 days after such maturity or payment
date: P ov d That this sentence shall apply only
r ide ,
to the payment of that portion of the purchase price

26

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.
(4) If any shipment of securities is incidental
to the consummation of the transaction, the period
applicable to the transaction under subparagraph
(2) of this paragraph shall be deemed to be ex­
tended by the number of days required for all such
shipments, but not by more than 7 days.
(5) If the creditor, acting in good faith in ac­
cordance with subparagraph (1) of this paragraph,
purchases a security for a customer, or sells a se­
curity to a customer, with the understanding that
he is to deliver the security promptly to the cus­
tomer, and the full cash payment to be made
promptly by the customer is to be made against
such delivery, the creditor may at his option treat
the transaction as one to which the period appli­
cable under subparagraph (2) of this paragraph is
not the 7 days therein specified but 35 days after
the date of such purchase or sale.
(6) If an appropriate committee of a national
securities exchange or a national securities associa­
tion is satisfied that the creditor is acting in good
faith in making the application, that the application
relates to a bona f d cash transaction, and that ex­
ie
ceptional circumstances warrant such action, such
committee, on application of the creditor, (i) may
extend any period specified in subparagraphs (2 ),
(3 ), (4 ), or (5) of this paragraph for one or more
limited periods commensurate with the circum­
stances, or (ii), in case a security purchased by the
customer in the special cash account is a margin or
exempted security, may authorize the transfer of
the transaction to a general account, special bond
account, special convertible security account, or
special omnibus account, and the completion of
such transaction pursuant to the provisions of this
part relating to such an account.
(7) The 7-day periods specified in this para­
graph refer to 7 full business days. The 35-day
period and the 90-day period specified in this para­
graph refer to calendar days, but if the last day of
any such period is a Saturday, Sunday, or holiday,
such period shall be considered to end on the next
full business day. For the purposes of this para­
graph, a creditor may, at his option, disregard any
sum due by the customer not exceeding $100.
(8) Unless funds sufficient for the purpose are
already in the account, no security other than an
exempted security shall be purchased for, or sold
to, any customer in a special cash account with the

REGULATION T

§ 220.4

creditor if any security other than an exempted
security has been purchased by such customer in
such an account during the preceding 90 days, and
then, for any reason whatever, without having been
previously paid for in full by the customer, the
security has been sold in the account or delivered
out to any broker or dealer: P o i e , That an
rvdd
appropriate committee of a national securities ex­
change or a national securities association, on ap­
plication of the creditor, may authorize the creditor
to disregard for the purposes of this subparagraph
any given instance of the type therein described if
the committee is satisfied that both creditor and
customer are acting in good faith and that circum­
stances warrant such authorization. For the pur­
poses of this subparagraph, the cancelation of a
transaction, otherwise than to correct an error, shall
be deemed to constitute a sale. The creditor may
disregard for the purposes of this subparagraph a
sale without prior payment provided full cash pay­
ment is received within the period described by sub­
paragraph (2) of this paragraph and the customer
has not withdrawn the proceeds of sale on or before
the day on which such payment (and also final pay­
ment of any check received in that connection) is
received. The creditor may so disregard a delivery
of a security to another broker or dealer provided
such delivery was for deposit into a special cash
account which the latter broker or dealer maintains
for the same customer and in which account there
are already sufficient funds to pay for the security
so purchased; and for the purpose of determining in
that connection the status of a customer’s account
at another broker or dealer, a creditor may rely upon
a written statement which he accepts in good faith
from such other broker or dealer.
(d)
Special arbitrage account. In a special arbi­
trage account, a member of a national securities
exchange may effect and finance for any customer
bona f d arbitrage transactions in securities. For
ie
the purpose of this paragraph, the term “arbi­
trage” 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 convert­
ible within 90 calendar days following the date of
its purchase into a second security together with
an offsetting sale at or about the same time of
such second security for the purpose of taking

27

advantage of a disparity in the prices of the two
securities, except that when the security purchased
is solely a due bill for, or other evidence of the
right to receive, only the security that is sold, and
the security that is sold is trading as a when-issued
security, such period shall be 180 calendar days.
(e) Special commodity account. In a special
commodity account, a creditor may effect and carry
for any customer transactions in commodities.
(f) Special miscellaneous account. In a special
miscellaneous account, a creditor may:
(1) With the approval of any regularly consti­
tuted committee of a national securities exchange
having jurisdiction over the business conduct of its
members, extend and maintain credit to meet the
emergency needs of any creditor;
(2 )(i) Extend and maintain credit, ( ) to or
a
for any partner of a firm which is a member of a
national securities exchange to enable such partner
to make a contribution of capital to such firm, or to
purchase stock in an affiliated corporation of such
firm, or ( ) to or for any person who is or will
b
become the holder of stock of a corporation which
is a member of a national securities exchange to
enable such person to purchase stock in such cor­
poration, or to purchase stock in an affiliated cor­
poration of such corporation; provided the lender
as well as the borrower is a partner in such member
firm or a stockholder in such member corporation,
or the lender is a firm or a stockholder in such
member corporation, or the lender is a firm or cor­
poration which is a member of a national securities
exchange and the borrower is a partner in such firm
or a stockholder in such corporation;
(ii)
Extend and maintain subordinated credit to
another creditor for capital purposes: P o i e ,That
rvdd
(a) Either the lender or the borrower is a firm
or corporation which is a member of a national
securities exchange, the other party to the credit is
an affiliated corporation of such member firm or
corporation, and, in addition to the fact that an
appropriate committee of the exchange is satisfied
that the credit is not in contravention of any rule of
the exchange, the credit has the approval of such
committee, or
( b) The lender as well as the borrower is a
member of such exchange, the credit has the ap­
proval of an appropriate committee of the ex­
change, and the committee, in addition to being
satisfied that the credit is not in contravention of
any rule of the exchange, is satisfied that the credit
is outside the ordinary course of the lender’s busi­
ness, and that, if the borrower’s firm or corporation

REGULATION T

§ 220.4

tomer, and pay out or deliver to or for any cus­
tomer, any money or securities;
(7) Effect and carry for any customer transac­
tions in foreign exchange; and
(8) Extend and maintain credit to or for any
customer without collateral or on any collateral
whatever for any purpose 4 other than purchasing or
carrying or trading in securities.
(g) Specialist’s account. In a special account
designated as a specialist’s account, a creditor may
effect and finance, for any member of a national
securities exchange who is registered and acts as a
specialist in securities on the exchange, such mem­
ber’s transactions as a specialist in such securities,
or effect and finance, for any joint venture in which
the creditor participates, any transactions in any
securities of an issue with respect to which all par­
ticipants, or all participants other than the creditor,
are registered and act on a national securities ex­
change as specialists. Such specialist’s account shall
be subject to the same conditions to which it would
be subject if it were a general account except that if
the specialist’s exchange, in addition to the other
requirements applicable to specialists, is designated
by the Board of Governors of the Federal Reserve
System as requiring reports suitable for supplying
current information regarding specialists’ use of
credit pursuant to this paragraph, the requirements
of § 220.6(b) regarding joint ventures shall not
apply to such accounts and the maximum loan
value of a registered security in such account shall
be as determined by the creditor in good faith.
(h) Special subscriptions accounts. In a special
subscriptions account a creditor may effect and
finance the acquisition of a margin security for a
customer through the exercise of a right to acquire
such security which is evidenced by a warrant or
certificate issued to stockholders and expiring within
90 days of issuance, and such special subscriptions
account shall be subject to the same conditions to
which it would be subject if it were a general
account, except that:
(1)
Each such acquisition shall be treated sepa­
rately in the account, and prior to initiating the
transaction the creditor shall obtain a deposit of
cash in the account such that the cash deposited
plus the maximum loan value of the securities so
acquired equals or exceeds the subscription price,
giving effect to a maximum loan value for the
securities so acquired of 75 per cent of their current

or an affiliated corporation of such firm or corpora­
tion does any dealing in securities for its own
account, the credit is not for the purpose of increas­
ing the amount of such dealing.
(iii) For the purpose of subdivisions (i) and
(ii) of this subparagraph, the term “affiliated cor­
poration” means a corporation all the common
stock of which is owned directly or indirectly by
the member firm or general partners and employees
of the firm, or by the member corporation or
holders of voting stock and employees of the cor­
poration and an appropriate committee of the ex­
change has approved the member firm’s or member
corporation’s affiliation with such affiliated cor­
poration.
(3) Purchase any security from any customer
who is a member of a national securities exchange
or a broker or dealer registered with the Securities
and Exchange Commission under section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o),
or sell any security to such customer: P o i e ,
rvdd
That the creditor acting in good faith purchases or
sells the security for delivery, against full payment
of the purchase price, as promptly as practicable in
accordance with the ordinary usage of the trade;
(4) Effect and finance, for any member of a
national securities exchange who is registered and
acts as odd-lot dealer in securities on the exchange,
such member’s transactions as an odd-lot dealer in
such securities, or effect ahd finance, for any joint
venture in which the creditor participates, any
transactions in any securities of an issue with re­
spect to which all participants, or all participants
other than the creditor, are registered and act on a
national securities exchange as odd-lot dealers;
(5) Effect transactions for and finance any joint
venture 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 distribut­
ing of all or part of an issue of securities (i) not
through the medium of a national securities ex­
change, or (ii) the distribution of which has been
approved by the appropriate committee of a national
securities exchange;
(6) Effect for any customer the collection or
exchange (other than by sale or purchase) of secu­
rities deposited by the customer specifically for
such purposes, and (subject to any other applicable
provisions of law) received from or for any cus­

“See § 220.7(c).

28

REGULATION T

§ 220.4

(1) Special bond account. In a special bond
account a creditor may effect and finance trans­
actions in exempted securities and registered non­
equity securities for any customer.5

market value as determined by any reasonable
method;
(2) After October 20, 1967, at the time when
credit is extended pursuant to this paragraph, the
creditor shall compute the amount by which the
credit exceeds the maximum loan value of the col­
lateral as prescribed by § 220.8 (the Supplement to
Regulation T) and the customer shall reduce the
credit by an amount equal to at least one-fourth of
such sum by the end of each of the 4 succeeding 3calendar-month periods or until the credit does not
exceed the current maximum loan value of the col­
lateral, whichever shall occur first, and, if the credi­
tor fails to obtain the required quarterly reduction
or a portion thereof with respect to a particular
acquisition within 5 full business days after such
reduction is due, the creditor shall promptly liqui­
date a portion of the collateral so acquired and
apply the proceeds of the sale to reduce the credit,
in an amount equal to at least twice the required
payment or portion thereof for the first 2 such
liquidations, at least equal to the required payment
or portion thereof for the third such liquidation,
and at least sufficient so that the remaining credit
does not exceed the current maximum loan value
of the remaining collateral after the fourth such
liquidation: P o i e , That no such liquidation
rvdd
need be in an amount greater than is necessary so
that the remaining credit does not exceed the maxi­
mum loan value of the remaining collateral deter­
mined as of the date the credit was extended; and

(j) Special convertible debt security account.
(1) In a special convertible debt security account
a creditor may extend credit on any margin security
consisting of a margin debt security (i) convertible
with or without consideration, presently or in the
future, into margin stock or (ii) carrying a warrant
or right to subscribe to or purchase such stock.
(2) A special convertible debt security account
shall be subject to the same conditions to which it
would be subject if it were a general account except
that the maximum loan value of the securities in
the account shall be as prescribed from time to time
in § 220.8 (the Supplement to Regulation T ) .
(3) Any security which ceases to be an equity
security while held in this account shall continue to
be treated as an equity security as long as it is
continuously held in this account.
(4) In the event any stock is to be substituted
for a security held in this account, or if a security
held in this account is to be used to offset a short
sale in the general account, such security shall
thereupon be transferred to the customer’s general
account against a deposit of cash or margin securi­
ties eligible for an extension of credit in this account
(counted at their maximum loan value) equal to at
least the maximum loan value of the security for
which such substitution is made, without regard to
the retention requirement of § 220.3(b )(2).
(k) Special equity funding account. In a special
equity funding account a creditor who is the issuer
or a subsidiary or affiliate of the issuer of a plan,
program, or investment contract, registered with the
Securities and Exchange Commission under the
Securities Act of 1933 (15 U.S.C. 77), that pro­
vides for the acquisition both of a security issued
by an investment company registered pursuant to
section 8 of the Investment Company Act of 1940
(15 U.S.C. 80a-8) and of insurance may arrange
for the extension or maintenance of credit, not in
excess of the premiums on such policy (plus any
applicable interest), on a security issued by such an
investment company that serves as collateral under
such a plan, program, or investment contract: Pro­
v d d That such credit is extended or maintained
ie,
by a lender subject to Part 207 of this Chapter
(Regulation G) or a bank subject to Part 221 of
this Chapter (Regulation U ). A creditor arrang­

(3) The creditor shall not permit any with­
drawal of cash or securities from the account so
long as the remaining credit exceeds the maximum
loan value of the remaining collateral in the ac­
count, except that when the remaining credit ex­
tended in connection with a given acquisition of
securities in the account has become equal to or less
than the maximum loan value of such securities as
prescribed in § 220.8 (the Supplement to Regula­
tion T) (or in connection with an acquisition after
October 20, 1967, the requirements of subpara­
graph (2) of this section have been fulfilled), such
securities shall be transferred to the general account
(or, if eligible, to a special convertible security ac­
count pursuant to § 220.4(j)) together with any
remaining portion of such credit. In order to facili­
tate the exercise of a right in accordance with the
provisions of this paragraph, a creditor may permit
the right to be transferred from a general account to
the special subscriptions account without regard to
any other requirement of this part.

6 For maximum loan value of such securities see § 220.8
(b), the Supplement to Regulation T.

29

REGULATION T

§§ 220.5— 220.6

ing credit in a special equity funding account shall
not extend, arrange, or maintain credit in the gen­
eral account or any other special account in
§§ 220.3 and 220.4 of this part.

SECTION 220.6—CERTAIN TECHNICAL
DETAILS
(a) Accounts of partners. In case a general
account, special bond account, or special con­
vertible security account is the account of a partner
of the creditor, the creditor, in calculating the ad­
justed debit balance of such account and the maxi­
mum loan value of the securities therein, shall dis­
regard the partner’s financial relations with the
firm as reflected in his capital and ordinary drawing
accounts.

SECTION 220.5— BORROWING BY
MEMBERS, BROKERS, AN D 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 secu­
rity) 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 part; or
(3) to the extent to which, under the provisions
of this part, loans are permitted between members
of a national securities exchange and/or brokers
and/or dealers, or loans are permitted to meet
emergency needs.

(b) Contribution to joint venture. In case a
general account, special bond account, or special
convertible security account is the account of a
joint venture in which the creditor participates, the
adjusted debit balance of such account shall in­
clude, in addition to the items specified in
§ 220.3(d), any amount by which the creditor’s
contribution to the joint venture exceeds the con­
tribution which he would have made if he had con­
tributed merely in proportion to his right to share
in the profits of the joint venture.
(c) Guaranteed accounts. No guarantee of a
customer’s account shall be given any effect for
purposes of this part.

(b) Agreements of nonmember banks. An
agreement filed pursuant to section 8(a) of the Act
(15 U.S.C. 78h(a)) 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 nonmem­
ber bank shall be in substantially the form con­
tained in Form F.R. T-l. Any nonmember bank
which has executed any such agreement may ter­
minate the agreement if it obtains the written con­
sent of the Board. Blank forms of such agreements,
information regarding their filing or termination,
and information regarding the names of nonmem­
ber banks for which such agreements are in force,
may be obtained from any Federal Reserve Bank.

(d) Transfer of accounts. (1) In the event of
the transfer of a general account, special bond ac­
count, or special convertible security account from
one creditor to another, suchaccount may be
treated for the purposes of this part as if it had
been maintained by the transferee from the date of
its origin: P o i e , That the transferee accepts in
rvdd
good faith a signed statement of the transferor that
no cash or securities need be deposited in such
account in connection with any transaction that has
been effected in such 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.
(2)
In the event of the transfer of a general
account, special bond account, or special con­
vertible security account, from one customer to
another, or to others, as a bona f d incident to a
ie
transaction that is not undertaken for the purpose
of avoiding the requirements of this part, each
such transferee account may be treated by the
creditor for the purposes of this part as if it had
been maintained for the transferee from the date
of its origin: P o i e , That the creditor accepts in
rvdd
good faith and keeps with such transferee account

(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 part,
and subject to any other applicable provisions of
law.

30

REGULATION T

§ 220.6

other distributions due on borrowed securities, and
any service charges (other than commissions)
which the creditor may impose, may be debited to
such account in accordance with the usual prac­
tice and without regard to the other provisions of
this part, but such items so debited shall be taken
into consideration in calculating the net credit or
net debit balance of such account.
(2)
A creditor may permit interest, dividends,
or other distributions received by the creditor with
respect to securities in a general account, special
bond account, or special convertible security ac­
count, to be withdrawn from such account only on
condition that the adjusted debit balance of such
account does not exceed the maximum loan value
of the securities in such account after such with­
drawal, or on condition that (i) such withdrawal
is made within 35 days after the day on which, in
accordance with the creditor’s usual practice, such
interest, dividends, or other distributions are en­
tered in such account, (ii) such entry in the ac­
count has not served in the meantime to permit in
the account any transaction which could not other­
wise have been effected in accordance with this
part, and (iii) any cash withdrawn does not repre­
sent any arrearage on the security with respect to
which it was distributed, and the current market
value of any securities withdrawn does not exceed
10 per cent of the current market value of the
security with respect to which they were dis­
tributed. Failure by a creditor to obtain in a gen­
eral account, special bond account, or special con­
vertible security account, any cash or securities
that are distributed with respect to any security in
such account shall, except to the extent that with­
drawal would be permitted under the preceding
sentence, be deemed to be a transaction in such
account which occurs on the day on which the
distribution is payable and which requires the
creditor to obtain in accordance with § 220.3(b) a
deposit of cash or securities having a maximum
loan value at least as great as that of the dis­
tribution.
(h)
Borrowing and lending securities. Without
regard to the other provisions of this part, a credi­
tor (1) may make a bona f d deposit of cash in
ie
order to borrow securities (whether margin or
non-margin) 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.

a signed statement of the transferor describing the
circumstances giving rise to the transfer.
(e) Reorganizations. A creditor may, without
regard to the other provisions of this part, effect
for a customer the exchange of any margin or
exempted security in a general account, special
bond account, or special convertible security ac­
count, for the purpose of participating in a reor­
ganization or recapitalization in which the security
is involved: P o i e , That if a non-margin non­
rvdd
exempted security is acquired in exchange the
creditor shall not, for a period of 60 days following
such acquisition, permit the withdrawal of such
security or the proceeds of its sale from such ac­
count except to the extent that such security or
proceeds could be withdrawn if the security were
a margin security.
(f) Time of receipt of funds or securities. For
the purposes of this part, 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 presen­
tation, or any order on a savings bank with pass­
book 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: P o i e , h w v r That if the
rvdd oee,
creditor receives notice that such check, draft,
order, or sight draft described in subparagraphs
(1 ), (2 ), or (3) of this paragraph is not paid on
the day of presentation, or if such security, check,
or draft described in subparagraph (3) of this
paragraph 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 part if the
provisions of this paragraph had not been utilized.
(g) Interest, service charges, etc. (1) Interest
on credit maintained in a general account, special
bond account, or special convertible security ac­
count, communication charges with respect to
transactions in such account, shipping charges,
premiums on securities borrowed in connection
with short sales or to effect delivery, dividends or

31

REGULATION T

| 220.7

(i)
Credit for clearance of securities. The ex­
tension 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 part, if it is
incidental to the clearance of transactions in securi­
ties directly between members of a national securi­
ties exchange or through an agency organized or
employed by such members 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 part results from a mechanical mistake
made in good faith in executing a transaction,
recording, determining, or calculating any loan,
balance, market price or loan value, or other simi­
lar mechanical mistake, the creditor shall not be
deemed guilty of a violation of this part if promptly
after the discovery of such mistake he takes what­
ever action may be practicable in the circumstances
to remedy such mistake.
SECTION 220.7— 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 creditor by
any person upon the same terms and conditions as
those upon which the creditor, under the provisions
of this part, 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 Part 221 of this Chapter
(Regulation U ) to extend Or maintain credit on
margin securities or exempted securities.
(b) Maintenance of credit. Except as otherwise
specifically forbidden by this part, any credit ini­
tially extended without violation of this part may be
maintained regardless of (1) reductions in the cus­
tomer’s equity resulting from changes in market
prices, (2) the fact that any security in an account
ceases to be margin or exempted, and (3) any
change in the maximum loan values or margin re­
quirements prescribed by the Board under this part.
In maintaining any such credit, the creditor may

32

accept or retain for his own protection additional
collateral of any description, including non-margin
securities.
(c) Statement of purpose of loan. Every exten­
sion of credit on a margin security (other than an
exempted security) shall be deemed to be for the
purpose of purchasing or carrying or trading in
securities, unless tne creditor has accepted in good
faith a written statement to the contrary in con­
formity with the requirements of Form F.R. T-4
executed by the customer and executed and ac­
cepted 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 tnan 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.
(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 part shall (1) prevent
any exchange or national securities association from
adopting and enforcing any rule or regulation fur­
ther restricting the time or manner in which its
members must obtain initial or additional margin in
customer’s accounts because of transactions effected
in such accounts, or requiring such members to
secure or maintain higher margins, or further re­
stricting the atnount of credit which may be ex­
tended or maintained by them, or (2) modify or
restrict the right of any creditor to require addi­
tional 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.
(f) Credit by insurance companies that issue
variable annuity contracts. (1) Except as provided
in subparagraph (2) of this paragraph, Part 207 of
this chapter (Regulation G) rather than this Part
shall apply to any credit extended, maintained, or
arranged for by a life insurance company which
(i) meets the definition of “insurance company”
set forth in section 2 (a )(1 7 ) of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(a) (1 7 ))

REGULATION T

§ 220.7

and (ii) is engaged in issuing or participating in
the issuance of any variable annuity contract, or
of any interest in a separate account established
by such insurance company, registered under the
Securities Act of 1933 (15 U.S.C. 77) or exempt
from such registration by Rule 156 of the Securi­
ties and Exchange Commission (17 CFR 230.156).
(2)
The provisions of this Part shall apply to
any credit extended to or maintained or arranged
for a customer by a life insurance company de­
scribed in subparagraph (1) of this paragraph that
has registered, or is required to register, as a
broker or dealer pursuant to section 15 of the
Securities Exchange Act of 1934 (15 U.S.C.
78o) in connection with its activities as such a
broker or dealer, including:

(i) the offer or sale of any security or securities
registered under the Securities Act of 1933 (15
U.S.C. 77) or exempt from such registration by
Rule 156 of the Securities and Exchange Com­
mission (17 CFR 230.156) issued by ( ) such
a
insurance company, or ( b) an investment com­
pany registered pursuant to section 8 of the
Investment Company Act of 1940 (15 U.S.C.
80a-8) for which the insurance company is an
underwriter, investment advisor or dealer; and
(ii) those activities which are not part of the
conventional lending activities of such life insur­
ance companies and which, in accordance with
the ordinary usage of the trade, would be consid­
ered part of the business of a broker or dealer.

[SECTION 220.8—SUPPLEMENT, containing maximum loan values, margin for short sales, retention requirement,
and requirements for inclusion on list of OTC margin stock, is printed separately.]

33

SPECIMEN ONLY

F. R. Form T-4
6-69

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
J

4

•

STATEMENT OF PURPOSE OF AN EXTENSION OF CREDIT BY A CREDITOR
(FEDERAL RESERVE FORM T-4)
A FALSE OR DISHONEST STATEMENT BY THE CUSTOMER OR THE CREDITOR ON THIS FORM
MAY BE PUNISHABLE BY FINE OR IMPRISONMENT (U.S. CODE, TITLE 15, SECTION 78ff AND
TITLE 18, SECTION 1001)
Instructions:
(1) Please print or type (if space is inadequate attach separate sheet).
(2) In Part II “source of valuation” need be filled in only if such source is other than regularly published information
in journal of general circulation.
(8) This form need be obtained only if the purpose of the credit is other than to purchase, carry, or trade in securities
(see § 220.7(c) of Regulation T).

PART I (to be completed by customer(s))
(1) The purpose of this credit in the amount of $

, which is unsecured or secured in

whole or in part by the collateral listed in Part II, is not to purchase or carry or trade in securities. It is
for the purpose of (describe in detail)

(2) This creditor,

...........

................................................................

.............* has outstanding, or has

(N am e of creditor)

agreed to extend, to the undersigned, the following other credits, which are not for the purpose of purchasing
or carrying or trading in securities, in addition to the credit described on this form (itemize and describe
briefly, including amounts and collateral if any). If none, so state

(3) Is any of the collateral listed in Part II (A) or (B) to be delivered, or has any such collateral
been delivered, from a bank, broker, dealer, or person other than the undersigned?

Yes □

No Q

If yes, from whom?

Yes □

No □

.............

Against payment?

(4) Has any of the collateral listed in Part II (A) or (B) been owned less than six months?
Yes □

No □

If yes, identify all such collateral so owned .

..

The undersigned has (have) read this form and hereby certifies and affirms that to the best of my (our)
knowledge and belief the information contained on this form is true, accurate, and complete.
SIGNED

............................................................
(M anual s ig n a tu re )

SIGNED

(D ate)

.....................................................................
(M anual sig n a tu re )

( P r i n t o r ty p e nam e)

( P r i n t o r ty p e nam e)

35

(Date)

PART II (to be completed by creditor)
(A)
Collateral consisting of margin stock or margin securities consisting of debt securities con­
vertible into margin stock. The loan value of such stock under the current Supplement to Regulation T
is
per cent; the loan value of such debt securities is ............... per cent.
No. o f shares
or
o th er u n it

M arket p rice
p e r sh a re

Item ize separately by issue

Source of
valuation

Total m ark e t
pric e p e r
issue

(B) Collateral consisting of other securities, e.g., mutual fund shares, registered non-equity securities.
P a r value
or other
denom ination

M ark et p rice

Source of
v aluation

Total m ark e t
p rice per
issue

C u rren t
m ark et
value

Item ize separately by issue

Source o f
valuation

Good faith
loan value

(C) Other collateral.
Item ize

The undersigned, a duly authorized representative of the creditor has read this form, has accepted the
customer’s statement on Part I in good faith as defined below*, and hereby certifies and affirms that to the
best of his knowledge and belief all the information contained on this form is true, accurate, and complete.
Date

.............

SIGNED ............................................................................................
(M anual Bis n a tu re )

( P r i n t o r ty p e nam e a n d title)

*
Regulation T requires that the customer’s statement on this form be accepted by the creditor acting in good faith.
Good faith requires that the creditor or his duly authorized representative (1) must be alert to the circumstances surrounding
the credit, and (2) if he has any information which would cause a prudent man not to accept the statement without inquiry,
has investigated and is satisfied that the statement is truthful. Among the facts which would require such investigation are
receipt of the statement through the mail or from a third party.

THIS FORM MUST BE RETAINED BY THE CREDITOR FOR AT LEAST THREE YEARS AFTER THE
TERMINATION OF THIS CREDIT

36

REGULATION U
(12 CFR 221)
As amended effective July 10, 1971

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

SECTION 221.1— GENERAL RULE
(a)
Purpose credit secured by stock. (1) Except
as provided in subparagraph (2) of this paragraph
(a) and in § 221.3(q) no bank shall extend any
credit secured directly or indirectly1 by any stocka
for the purpose of purchasing or carrying any mar­
gin stock 8 in an amount exceeding the maximum
loan valife 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: P o i e , That unless
rvdd
held as collateral for such credit on October 20,
1967, and continuously thereafter, any collateral
other than stock shall have loan value for the pur­
pose of this part only as collateral for a credit
which is not secured by stock, as described in
§2 2 1 .3 (s), and any collateral consisting of con­
vertible debt securities described in § 221.3 (t) shall
have loan value only for the purpose of that section,
and not for other credit subject to this part.
(2) Credit extended prior to July 8, 1969, for
* This text corresponds to the Code of Federal Regula­
tions, Title 12, Chapter II, part 221, cited as 12 CFR 221.
The words “this part,” as used herein, mean Regulation U.
1As defined in § 221.3(c).
2 As defined in § 221.3 (/).
8Sometimes referred to as a “purpose credit”. See
§ 221.3(b). The term “margin stock” is defined in § 221.3(v).

37

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).
(b)
Substitutions and withdrawals. Except as
permitted in paragraph (c) of this section, while a
bank maintains any credit subject to this part,
whenever extended, the bank shall not at any time
permit any withdrawal or substitution of collateral
unless either (1) the credit would not exceed the
maximum loan value of the collateral after such
withdrawal or substitution, or (2) the credit is
reduced by at least the amount by which the maxi­
mum loan value of any collateral deposited is less
than the “retention requirement” of any collateral
withdrawn. The “retention requirement” of col­
lateral other than stock is the same as its maximum
loan value and the “retention requirement” of col­
lateral consisting of stock is prescribed from time
to time in § 221.4 (the Supplement to Regulation
U).

* As defined in § 221.3(d), “OTC stock” hereinafter re­
fers to stock traded “over the counter.”

REGULATION U

§ 221.2

(c) Same-day transactions. Except as provided
in § 221.3 (r) (1), a bank may permit a substitution
of stock whether margin or non-margin, effected by
a purchase and sale on orders executed within the
same day: P o i e , That (1) if the proceeds of the
rvdd
sale exceed the total cost of the purchase, the credit
is reduced by at least an amount equal to the “re­
tention requirement” with respect to the sale less
the “retention requirement” with respect to the pur­
chase, or (2) if the total cost of the purchase ex­
ceeds the proceeds of the sale, the credit may be in­
creased by an amount no greater than the maximum
loan value of the stock purchased less the maximum
loan value of the stock sold. If the maximum loan
value of the collateral securing the credit has be­
come less than the amount of the credit, the amount
of the credit may nonetheless be increased if there
is provided additional collateral having maximum
loan value at least equal to the amount of the
increase.
(d) Single credit rule. For the purpose of this
part, except for credit subject to §221.3(s) or (t),
the entire amount of the purpose credit extended to
any customer by any bank at any time shall be
considered a single credit; and all the collateral
securing such credit shall be considered in deter­
mining whether or not the credit complies with this
part.

(e) Any credit extended to a member of a
national securities exchange or a broker or dealer
registered under section 15 of the Securities Ex­
change Act of 1934 (15 U.S.C. 78o) secured by
any securities which, according to written notice
received by the bank from the broker or dealer
pursuant to a rule of the Securities and Exchange
Commission concerning the hypothecation of cus­
tomers’ securities (Rule 8c-l (17 CFR 240.8c-l)
or Rule 15c2-l (17 CFR 240.15c2-l)), are
securities carried for the account of one or more
customers;
(f) Any credit extended to finance the purchase
or sale of securities for prompt delivery which is to
be repaid in the ordinary course of business upon
completion of the transaction: P o i e , That the
rvdd
advance is not made to a person described in
§ 221.3 ( q ) : And p o i e f r h r That it is either
r v d d ute,
(1) extended to a broker or dealer, or (2) extended
for a purpose other than to enable the borrower to
pay for stock purchased in an account subject to
Part 220 of this Chapter (Regulation T);
(g) Any credit extended against securities in
transit, or surrendered for transfer, which is payable
in the ordinary course of business upon arrival of
the securities or upon completion of the transfer:
P o i e , That the credit is not extended to a per­
rvdd
son described in § 221.3( q ) : And p o i e f r h r
r v d d ute,
That it is either (1) extended to a broker or dealer,
or (2) extended for a purpose other than to enable
the customer to pay for stock purchased in an ac­
count subject to Part 220 of this Chapter (Regula­
tion T ) ;
(h) Any credit which is to be repaid on the
calendar day on which it is extended: P o i e ,
rvdd
That the credit is not extended to a person de­
scribed in §221.3(q): And p o i e f r h r That
r v d d ute,
it is either (1) extended to a broker or dealer, or
(2) extended for a purpose other than to enable
the customer to pay for stock purchased in an
account subject to Part 220 of this Chapter (Regu­
lation T ) ;
(i) Any credit extended outside the States of the
United States and the District of Columbia;
(j) Any credit extended to a member of a
national securities exchange for the purpose of
financing his or his customers’ bona f d arbi­
ie
trage transactions in securities. For the purposes
of this paragraph, 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 pur­

SECTION 221.2— EXCEPTIONS TO
GENERAL RULE
Notwithstanding the provisions of § 221.1, a
bank may extend and may maintain any credit for
the purpose specified in § 221.1, without regard to
the limitations prescribed therein, or in § 221.3(t),
if the credit comes within any of the following
descriptions.
(a) Any credit extended to a bank or to a
foreign banking institution;
(b) Any credit extended to a “plan-lender” as
defined in § 207.4(a) of Part 207 of this Chapter
(Regulation G) to finance a plan described therein:
P o i e , That in no event does the bank have
rvdd
recourse to any stock purchased pursuant to such
plan;
(c) Any credit extended to a dealer, or to two
or more dealers, to aid in the financing of the dis­
tribution of securities to customers not through the
medium of a national securities exchange;
(d) Any credit extended to a broker or dealer
that is extended in exceptional circumstances in
good faith to meet his emergency needs;

38

REGULATION U

§ 221.3

That any such credit extended after April 16,
pose of taking advantage of a difference in prices
1971, shall become subject upon renewal to such
in the two markets, or (2) a purchase of a security
additional restrictions as the Board of Governors
which is, without restriction other than the pay­
may impose by regulation concerning the condi­
ment of money, exchangeable or convertible with­
tions upon which credit may be extended for the
in 90 calendar days following the date of its pur­
purpose of making such loan or contribution: And
chase into a second security together with an
p o ed f r h r That (1) all of the proceeds
r vid u t e ,
offsetting sale at or about the same time of such
of such extension of credit are so loaned or con­
second security, for the purpose of taking advan­
tributed to the capital of the broker or dealer and
tage of a disparity in the prices of the two securi­
(2) that all of the proceeds of any withdrawal of
ties, except that when the security purchased is
such loan or contribution of capital from the
solely a due bill for, or other evidence of the right
to receive, only the security that is sold, and the
broker or dealer by the customer or redemption of
security that is sold is trading as a when-issued
such stock shall be used to reduce or retire said
security, such period shall be 180 calendar days;
extension of credit.
(k) Any credit extended to a member of a na­
tional securities exchange for the purpose of financ­
ing such members’ transactions as an odd-lot dealer
SECTION 221.3— MISCELLANEOUS
in securities with respect to which he is registered
PROVISIONS
on such national securities exchanges as an odd-lot
(a) Required statement as to stock-secured
dealei}
credit. In connection with an extension of credit
( 1)
Any loan for the purpose of making a
secured directly or indirectly by any stock, the bank
loan or providing capital to a person who is sub­
shall obtain and retain in its records for at least 3
ject to Part 220 of this Chapter (Regulation T ),
years after such credit is extinguished a statement
which loan has been exempted by the Board of
in conformity with the requirements of Federal
Governors of the Federal Reserve System, by
Reserve Form U-l executed by the recipient of
Order, from the requirements of this Part, either
such extension of credit (sometimes referred to as
unconditionally or upon specified terms and con­
the “customer”) and executed and accepted in good
ditions or for stated periods, upon a finding that
faith by a duly authorized officer of the bank prior
the granting of such an exemption is necessary
to such extension: P o i e , That this requirement
rvdd
or appropriate, in the public interest or for the
shall not apply to any credit described in para­
protection of investors; P o i e , That the Securi­
rvdd
graphs (o) or (w) of this section or § 221.2 of this
ties Investor Protection Corporation shall have
part except for credit described in paragraphs
certified to the Board that such action is appro­
221.2(f), (g), and (h) extended to persons who
priate under the circumstances, and
are not brokers or dealers subject to Part 220 of
Cm) Any credit extended to or maintained for
this Chapter (Regulation T ). In determining
a customer for the purpose of making a loan or
whether or not an extension of credit is for the
contribution of capital to a broker or dealer sub­
purpose specified in § 221.1 or for any of the pur­
ject to Part 220 (Regulation T) if the loan or
poses specified in § 221.2 the bank may rely on the
contribution is in conformity with the require­
statement executed by the customer if accepted in
ments regarding satisfactory subordination agree­
good faith. To accept the customer’s statement in
ments or equities in the accounts of partners of a
good faith, the officer must (1) be alert to the
rule of the Securities and Exchange Commission
circumstances surrounding the credit and (2) if he
(Rule 1 5 c 3 -l(c )( 2 ) (A ), ( c ) ( 4 ) , and ( c ) ( 7 ) )
has any information which would cause a prudent
(17 CFR 240.1 5 c 3 -l(c )(2 )(A ), ( c ) ( 4 ) , and
man not to accept the statement without inquiry,
( c ) ( 7 ) ) or the capital rules of an exchange of
have investigated and be satisfied that the customer’s
which the broker or dealer is a member if the
statement is truthful.
(b) Purpose of a credit. The “purpose of a
members thereof are exempt therefrom by Rule
credit” is determined by substance rather than
1 5 c3 -l(b )(2 ) of the Commission (17 CFR
form.
240.15c3-l(b) (2 )) or to purchase stock in a
(1)
Credit which is for the purpose, whether
broker or dealer which is a corporation when
immediate, incidental, or ultimate, of purchasing or
such stock is purchased directly from the issuer
carrying a margin stock is “purpose credit”, despite
and not as part of a public distribution: P o i e ,
rvdd

39

REGULATION U

§ 221.3

any temporary application of funds otherwise.
(2) Credit to enable the customer to reduce or
retire indebtedness which was originally incurred to
purchase a margin stock is for the purpose of
“carrying” such a security.
(3) An extension of credit provided for in a
plan, program, or investment contract offered or
sold or otherwise initiated after August 31, 1969,
which provides for the acquisition both of any
securities described in paragraph (v) of this section
and of goods, services, property interests, other
securities, or investments, is “purpose credit”.
(c) Indirectly secured. The term “indirectly
secured” includes any arrangement with the cus­
tomer under which the customer’s right or ability
to sell, pledge, or otherwise dispose of stock owned
by the customer is in any way restricted so long as
the credit remains outstanding, or under which the
exercise of such right, whether by written agree­
ment or otherwise, is or may be cause for accelera­
tion of the maturity of the credit: P o i e , That
rvdd
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 part of such assets con­
sists of stock, or (2) if the bank in good faith has
not relied upon such stock as collateral in the ex­
tension or maintenance of the particular credit:
And p o i e f r h r That the foregoing shall not
r v d d ute,
apply to stock held by the bank only in the capacity
of custodian, depositary, or trustee, or under similar
circumstances, if the bank in good faith has not
relied upon such stock as collateral in the extension
or maintenance of the particular credit.
(d) OTC margin stock. (1) The term “OTC
margin stock” means stock not traded on a national
securities exchange which the Board of Governors
of the Federal Reserve System has determined to
have the degree of national investor interest, the
depth and breadth of market, the availability of in­
formation respecting the stock and its issuer, and the
character and permanence of the issuer to warrant
subjecting such stock to the requirements of this
part.
(2) The Board will from time to time publish
a list of OTC margin stocks as to which the
Board has made the determination described in sub­
paragraph (1) of this paragraph (d ). Except as
provided in subparagraph (4) of this paragraph
(d) such stocks shall meet the requirements of
§ 221.4(d) (the Supplement to Regulation U ).
(3) The Board will from time to time remove
from the list described in subparagraph (2) of this

paragraph (d) stocks that cease to:
(i) pxist or of which the issuer ceases to exist,
or
(ii) Meet substantially the provisions of sub­
paragraph (1) of this paragraph (d) and of
§ 221.4(d) (The Supplement to Regulation U ).
(4) The foregoing notwithstanding, the Board
may, upon its own initiative, or upon application by
any interested party, omit or remove any stock that
is not traded on a national securities exchange from
or add any such stock to such list of OTC margin
stocks, if in the judgment of the Board, such action
is necessary or appropriate in the public interest.
(5) It shall be unlawful for any bank to make,
or cause to be made, any representation to the
effect that the inclusion of a security on such list of
OTC margin stocks is evidence that the Board or
the Securities and Exchange Commission has in any
way passed upon the merits of, or givenNapproval
to, such security or any transaction therein. Any
statement in an advertisement or other similar com­
munication containing a reference to the Board in
connection with such stocks or such list shall
constitute such an unlawful representation.
(e) Renewals and extensions of maturity. The
renewal or extension of maturity of a credit need
not be treated as the extension of a credit if the
amount of the credit is not increased except by the
addition of interest or service charges in respect to
the credit or of taxes on transactions in connection
with the credit.
(f) Transfers. A bank may, without following
the requirements of this part as to the extension of
a credit,
(1) Permit the transfer of a credit from one
customer to another, or to others: P o i e , That a
rvdd
statement by the transferor, describing the circum­
stances giving rise to the transfer, is accepted in
good faith 5 and signed by an officer of the bank as
having been so accepted, and kept with each such
transferee account, or
(2) Accept the transfer of a credit originally
extended in conformity with the requirements of
this part directly from another bank: P o i e ,
rvdd
That the statement of purpose, executed by the cus­
tomer in connection with the original extension of
credit and accepted in good faith and signed by an
officer of the bank originally extending such credit
in conformity with the requirements of § 221.3(a),
is obtained and kept with each such transferee ac­
r v d d ute,
count: And p o i e f r h r That any transfer
pursuant to this paragraph is made as a bona f d
ie
5 As described in § 221.3(a).

40

REGULATION U

§ 221.3

incident to a transaction not undertaken for the
purpose of avoiding the requirements of this part,
the amount of the credit is not increased, and the
collateral for the credit is not changed; and, after
such transfer, a bank may permit such withdrawals
and substitutions of collateral as are permitted in
respect to a credit it extends subject to this part.
(g) Reorganizations and recapitalizations. Noth­
ing in this part shall be construed to prevent a bank
from permitting withdrawals or substitutions of
securities to enable a customer to participate in a
reorganization or recapitalization.
(h) Mistakes in good faith. N o mistake made
in good faith in connection with the extension or
maintenance of a credit shall be deemed to be a
violation of this part.
(i) Action for bank’s own protection. Nothing
in this part shall be construed as preventing a bank
from taking such action as it shall deem necessary
in good faith for its own protection.
(j) Reports. Every bank, and every person en­
gaged in the business of extending credit who, in
the ordinary course of business, extends credit for
the purpose of purchasing or carrying margin stock
shall make such reports as the Board of Governors
of the Federal Reserve System may require to en­
able it to perform the functions conferred upon it
by the Securities Exchange Act of 1934 (15 U.S.C.
78).
(k) Definitions. For the purposes of this part,
unless the context otherwise requires, the terms
herein have the meanings assigned to them in
section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 7 8 c (a )), except that the term
“bank” does not include a bank which is a mem­
ber of a national securities exchange.
(1)
Stock. The term “stock” includes any secu­
rity commonly known as a stock; any voting trust
certificate or other instrument representing such a
security; and any security convertible, with or with­
out consideration, presently or in the future, into
such security, certificate, or other instrument, or
carrying any warrant or right to subscribe to or
purchase such a security; or any such warrant or
right.
(m) Credit subject to § 221.1. A “credit subject
to § 221.1” is a credit which is (1) secured direct­
ly or indirectly by any stock (or made to a person
described in paragraph (q) of this section), (2) ex­
tended for the purpose of purchasing or carrying
any margin stock, and (3) not excepted by § 221.1
(a )(2 ) or § 221.2.
(n) Segregation of collateral. (1) The bank

41

shall identify all the collateral used to meet the
requirements of § 221.1 (the entire credit being
considered a single credit and collateral being simi­
larly considered, as required by § 221.1(d)) and
shall not cancel the identification of any portion
thereof except in circumstances that would permit
the withdrawal of that portion. Such identification
may be made by any reasonable method.
(2) Only the collateral required to be so identi­
fied shall have loan value for purposes of § 221.1
of be subject to the restrictions therein specified
with respect to withdrawals and substitutions; and
(3) For any credit extended to the same cus­
tomer that is not subject to § 221.1 (other than a
credit described in § 221.2(b), (d), (f), (g), or
(h )), the bank shall in good faith require as much
collateral not so identified as the bank would re­
quire (if any) if it held neither the indebtedness
subject to § 221.1 nor the identified collateral. This
shall not be construed, however, to require the
bank, after it has extended any credit, to obtain
any collateral therefor because of any deficiency
in collateral already existing at the opening of
business on June 15, 1959, or any decline in the
value or quality of the collateral or in the credit
rating of the customer.
(4) Nothing in this part shall require a bank
to waive or forego any lien, and nothing in this
part shall apply to a credit extended to enable the
customer to meet emergency expenses not reason­
ably foreseeable, provided the extension of credit
is supported by a statement executed by the cus­
tomer and accepted in good faith and signed by an
officer of the bank as having been so accepted in
conformity with the requirements of § 221.3(a).
For this purpose, such emergency expenses shall
include expenses arising from circumstances such
as the death or disability of the customer, or some
other change in his circumstances involving ex­
treme hardship, not reasonably foreseeable at the
time the credit was extended. The opportunity to
realize monetary gain is not a “change in his
circumstances” for this purpose.
(o)
Specialist. In the case of a credit extended
to a member of a national securities exchange who
is registered and acts as a specialist in securities on
the exchange for the purpose of financing such
member’s transactions as a specialist in such securi­
ties, the maximum loan value of any stock shall be
as determined by the bank in good faith: P o i e ,
rvdd
That the specialist’s exchange, in addition to other
requirements applicable to specialists, is designated
by the Board of Governors of the Federal Reserve

REGULATION U

System as requiring reports suitable for supplying
current information regarding specialists’ use of
credit pursuant to this section.
(p) Subscriptions issued to stockholders. An
extension of credit need not comply with the other
requirements of this part if it is to enable the
customer to acquire a stock by exercising a right to
acquire such stock which is evidenced by a warrant
or certificate issued to stockholders and expiring
within 90 days of issuance: P o i e , That:
rvdd
(1) Each such acquisition under this paragraph
shall be treated separately, and the credit when ex­
tended shall not exceed 75 per cent of the current
market value of the stock so acquired as determined
by any reasonable method;
(2) After October 20, 1967, at the time credit
is extended pursuant to this paragraph, the bank
shall compute the amount by which the credit ex­
ceeds the maximum loan value of the collateral
as prescribed by § 221.4 and the customer shall re­
duce the credit by an amount at least equal to
one-fourth of such sum by the end of each of the 4
succeeding 3-calendar-month periods or until the
credit does not exceed the current maximum loan
value of the stock, whichever shall occur first, and
if the bank fails to obtain the required quarterly
reduction or a portion thereof with respect to a
particular acquisition within 5 full business days
after such reduction is due, the bank shall promptly
sell a portion of the collateral so acquired and apply
the proceeds of the sale to reduce the credit in an
amount at least equal to twice the required pay­
ment or portion thereof for the first 2 such reduc­
tions, at least equal to the required payment or por­
tion thereof for the third such reduction, and at least
sufficient so that the remaining credit does not
exceed the current maximum loan value of the re­
maining collateral after the fourth such reduction:
P o i e , That no such reduction need be in an
rvdd
amount greater than is necessary so that the re­
maining credit does not exceed the maximum loan
value of the remaining collateral determined as of
the date when the credit was extended;
(3) While the customer has any credit outstand­
ing at the bank under this paragraph no withdrawal
of cash or substitution or withdrawal of stock used
as collateral for such extension of credit shall be
permissible, except that when the remaining credit
has become equal to or less than the maximum loan
value of the remaining stock as prescribed for
§ 221.1 or § 221.3(t) in § 221.4 (the Supplement
to Regulation U ) whichever is applicable (or with
respect to credit extended after October 20, 1967,

§ 221.3

the requirements of the preceding clause have been
fulfilled) the remaining stock and related credit
shall thereafter be treated as subject to § 221.1 or
§ 221.3(t), whichever is applicable, instead of this
paragraph. In order to facilitate the exercise of a
right under this paragraph, a bank may permit the
right to be withdrawn from a credit subject to
§ 221.1 without regard to any other requirement of
this part.
(q) Credit to certain lenders. Any credit ex­
tended to a customer not subject to this part or to
Part 220 of this Chapter (Regulation T) engaged
principally, or as one of the customer’s important
activities, in the business of extending credit for
the purpose of purchasing or carrying margin stocks
is a credit for the purpose of purchasing or carry­
ing such stocks unless the credit and its purposes are
effectively and unmistakably separated and dis­
associated from any financing or refinancing, for
the customer or others, of any purchasing or carry­
ing of such stocks. Any credit extended to any such
customer, unless the credit is so separated and dis­
associated or is excepted by § 221.2, is a credit
“subject to § 221.1” regardless of whether or not
the credit is secured by any stock; and no bank
shall extend any such credit subject to § 221.1 to
any such customer, without collateral or without the
credit being secured as would be required by this
part if it were secured by any stock. Any such
credit subject to § 221.1 to any such customer shall
be subject to the other provisions of this part appli­
cable to credit subject to § 221.1, including provi­
sions regarding withdrawal and substitution of
collateral.
(r) Convertible securities. (1) If, after June 15,
1959, and prior to October 21, 1967, credit was
extended for the purpose of purchasing or carrying
a security convertible into a stock registered on a
national securities exchange and the credit was
secured by such a security, and after October 20,
1967, there is substituted any stock as direct or in­
direct collateral for such credit, the credit shall
thereupon be treated as subject to § 221.1 or
§ 221.3(t), whichever is applicable. In any such
case, the amount of the outstanding credit, or such
amount plus any increase therein to enable the
customer to acquire a stock so registered through
the conversion of the security pursuant to its terms,
shall not be permitted on the date of such substi­
tution to exceed the maximum loan value of the
collateral for the credit: P o i e , That any reduc­
rvdd
tion in the credit or deposit of collateral required
on that date to meet this requirement may be
brought about within 30 days of such substitution.

REGULATION U

§ 221.3

(2)
Any credit extended after October 20, 1967,
for the purpose of purchasing or carrying a security
convertible into a stock registered on a national
securities exchange, and any credit extended after
M y 8, 1969, for the purpose of purchasing or
carrying a security convertible into margin stock, if
the credit is secured, directly or indirectly, by any
stock, is a credit subject to § 221.1 or § 221.3 (t),
whichever is applicable.
(s) Credit secured by collateral other than
stocks. 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 collat­
eral shall be as determined by the bank in good
faith.
(t) Credit on convertible debt securities. (1) A
bank may extend credit for the purpose specified
in § 221.1 on collateral consisting of any debt
security (i) convertible with or without considera­
tion, presently or in the future, into a margin stock
or (ii) carrying a warrant or right to subscribe to or
purchase such a stock (such a debt security is
sometimes referred to herein as a “convertible secu­
rity”).
(2) Credit extended under this paragraph shall
be subject to the same conditions as if it were sub­
ject to § 221.1 except: (i) the entire amount of such
credit shall be considered a single credit treated
separately from the single credit specified in § 221.1
(d) and all the collateral securing such credit shall
be considered in determining whether or not the
credit complies with this part, and (ii) the maxi­
mum loan value of the collateral shall be as pre­
scribed from time to time in § 221.4 (the Supple­
ment to Regulation U ).
(3) Any convertible security originally eligible
as collateral for a credit extended under this para­
graph shall be treated as such as long as continu­
ously held as collateral for such credit even though
it ceases to be convertible or to carry warrants or
rights.
(4) In the event that any stock other than a
convertible security is substituted for a convertible
security held as collateral for a credit extended
under this paragraph, the stock and any credit ex­
tended on it in compliance with this part shall
thereupon be treated as subject to § 221.1 and the
credit extended under this paragraph shall be re­
duced by an amount equal to the maximum loan
value of the security withdrawn.
(u)
Arranging for credit. No bank shall ar­
range for the extension or maintenance of any
credit for the purpose of purchasing or carrying any

43

margin stock, except upon the same terms and condi­
tions on which the bank itself could.extend or main­
tain such credit under the provisions of this part.
(v)
The term “margin stock” means any stock6
which is (1) a stock registered on a national securi­
ties exchange, (2) an OTC margin stock,7 (3) a
debt security (i) convertible with or without con­
sideration, presently or in the future, into a margin
stock or (ii) carrying any warrant or right to sub­
scribe 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 Act
of 1958 (15 U.S.C. 661) registered pursuant to sec­
tion 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.8
(w) OTC market maker exemption. (1) In the
case of credit extended to an OTC market maker,
as defined in subparagraph (2) of this paragraph
(w ), for the purpose of purchasing or carrying an
OTC margin stock in order to conduct the market
making activity of such a market maker, the maxi­
mum loan value of any OTC margin stock (except
stock that has been identified as a security held
for investment pursuant to a rule of the Commis­
sioner of Internal Revenue (Regs. Section 1-12361(d)) shall be determined by the bank in good
faith: P o i e , That in respect of each such stock
rvdd
he shall have filed with the Securities and Exchange
Commission a notice of his intent to begin or con­
tinue such market making activity (Securities and
Exchange Commission Form X -17A -12(1)) and
all other reports required to be filed by market
makers in OTC margin stocks pursuant to a rule of
the Commission (Rule 17a-12 (17 CFR 240.17a12)) and shall not have ceased to engage in such
market making activity: And p o i e f r h r
r v d d ute,
That the bank shall obtain and retain in its records
for at least 3 years after such credit is extinguished
a statement in conformity with the requirements of
Federal Reserve Form U-2, executed by the OTC
market maker who is the recipient of such credit
and executed and accepted in good faith by a duly
authorized officer of the bank prior to such exten­
sion. In determining whether or not an extension of
credit is for the purpose of conducting such market
making activity, a bank may rely on such a state­
ment if executed vand accepted in accordance with
8 As defined in § 221.3 ( I ) .
7 As defined in § 221.3(d).
8 As defined in 15 U.S.C. 78c(a)(12).

REGULATION U

the requirements of this paragraph
§ 221.3(a).

§221.3
(w)

(x) Combined purchase of mutual funds and
insurance. (1) An extension of purpose credit

and

provided for in a plan, program, or investment
contract that is registered with the Securities and
Exchange Commission under the Securities Act
of 1933 (15 U.S.C. 77) and provides for the
acquisition both of a security issued by an in­
vestment company described in paragraph (v)(5)
of this section and an insurance policy or contract
shall be subject to all the provisions of this Part,
except that, where the credit is secured by the
security and does not exceed the premium on
such policy (plus any applicable interest), the
maximum loan value of such security shall be 40
per cent of its current market value, as deter­
mined by any reasonable method.
(2)
Sections 221.1 and 22L 3(t) of this Part
shall not apply to any credit extended to a person
registered pursuant to § 207.1(a) of this Chapter
(Regulation G) who extends credit pursuant to
§ 2 0 7 .4 (f)(1 ) of this Chapter, P o i e , That:
rvdd
(i) the credit extended pursuant to this sub­
paragraph is secured by securities that are issued
by an investment company described in paragraph
(v) (5) of this section, and are carried for the
accoUnt of one or more customers under a plan,
program, or investment contract described in sub­
paragraph (1) of this paragraph (and the bank
receives written notice from the recipient of the
credit to this effect); and
(ii) the provisions of such plan, program, or
investment contract conform to the provisions of
Rule 15c2-l of the Securities and Exchange Com­
mission concerning hypothecation of customers’
securities (17 CFR 240.15C2-1).

(2) An OTC market maker with respect to an
OTC margin stock is a dealer who has and main­
tains minimum net capital, as defined in a rule of
the Securities and Exchange Commission (Rule
15c3-l (17 CFR 240.15c3-l) ) or in the capital
rules of an exchange of which he is a member if the
members thereof are exempt therefrom by Rule
15c3-l (b )(2 ) of the Commission (17 CFR
2 4 0 .1 5 c3 -l(b )(2 )), of $25,000 plus $5,000 for
each such stock in excess of 5 in respect of which
he has filed and not withdrawn the notice on
Commission Form X-17A-12(1) (but in no case
does this subparagraph (2) require net capital of
more than $250,000), who is in compliance with
such rule of the Commission or exchange and who,
except when such activity is unlawful, meets all of
the following conditions with respect to such stock:
(1) he regularly publishes bona fd, competitive
ie
bid and offer quotations in a recognized inter-dealer
quotation system, (ii) he furnishes bona fd, com­
ie
petitive bid and offer quotations to other brokers
and dealers on request, (iii) he is ready, willing j and
able to effect transactions in reasonable amounts,
and at his quoted prices, with other brokers and
dealers, (iv) he has a reasonable average fate of
inventory turnover.
(3) If all or a portion of the credit extended
pursuant to this paragraph (w) ceases to be for
the purpose specified in subparagraph (1) or the
dealer to whom the credit is extended ceases to be
an OTC market maker as defined in sulbparagraph
(2 ), the credit or such portion thereof shall there­
upon be treated as “a credit subject to § 221.1.”

[SECTION 221.4—SUPPLEMENT, containing maximum loan values, retention requirement, and requirements for in­
clusion on list of OTC margin stock, is printed separately.]

44

SPECIMEN ONLY

F. R. Form U-l
Rev. 6-69

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE OF A STOCK-SECURED
EXTENSION OF CREDIT BY A BANK
(FEDERAL RESERVE FORM U-l)
A FALSE OR DISHONEST STATEMENT BY THE CUSTOMER OR THE OFFICER OF THE BANK ON
THIS FORM MAY BE PUNISHABLE BY FINE OR IMPRISONMENT (U.S. CODE, TITLE 15, SECTION
78ff AND TITLE 18, SECTION 1001)
Instructions:
(1) P lea se print or typ e ( i f space is inadequate attach sep arate sh eet).
(2 ) The term “ stock” is defined in § 2 2 1 .3 ( I ) o f R egulation U.
(3) P art I (3 ) and (4) need be filled in only if the purpose o f the credit described in P a r t I (1) is other than to pur­
chase or carry m a rgin stock.
(4) In P a r t II “source o f valu a tion ” need be filled in o nly if such source is other than regu larly published inform ation
in journal of general circulation.
(5 ) P art II need not be com pleted in the case o f a credit o f $5,000 or less w hich is not for the purpose o f purchasing or
c arryin g m argin stock. H ow ever, in such cases, P a r t I m u st be completed as i f P a r t II w ere completed.

PART I (to be completed by customer(s))
(1) The purpose of this credit in the amount of $

, secured in whole or in part by

the stock listed in Part II (A) and (B) is (describe in detail)

(2) This bank,

........................

..........., has outstanding, or has

(N am e of bank)

agreed to extend, to the undersigned, the following credits in addition to the credit described on this form
(itemize and describe briefly, including amounts and collateral if any). If none, so state

...................

(3) Is any of the collateral listed in Part II (A) or (B) to be delivered, or has any such collateral
been delivered, from a bank, broker, dealer, or person other than the undersigned?

Yes □

No □

Against payment?

Yes □

No □

If yes, from whom?........
(4) Has any ofthe collateral listed in Part II (A) or
Yes □

No □

(B) been owned less

than six months?

If yes, identify all such collateral so owned.

The undersigned has (have) read this form and hereby certifies and affirms that to the best of my (our)
knowledge and belief the information contained on this form is true, accurate, and complete.
SIGNED .......................................................................
(M anual sig n a tu re )

(Date)

SIGNED

...................................................................
(M anual sig n a tu re )

( P r i n t or type nam e)

( P r i n t o r ty p e nam e)

45

(Date)

PART II to be completed by bank)
(A)
Collateral cc..sisting of stock, other than debt securities convertible into margin stock. The
loan value of such stock under the current Supplement to Regulation U is ............ per cent.
M arket price
p e r share

Item ize separately by is.sue

No. of shares

Source of
valuation

Total m ark e t
p ric e p e r
Issue

(B)
Collateral consisting of debt securities convertible into margin stock. The loan value of such
securities under the current Supplement to Regulation U is
....... per cent.
f

'

.

Item ize sep arately by i.^sue

P a r value

^

M arket price

Source o f
valuation

T otal m ark e t
price p e r
issue

C u rren t
m ark e t
value

Source o f
valuation

Good fa ith
loan value

(C) Other collateral.
Describe briefly (itemize w here 10 per cent or m ore)

The undersigned, a duly authorized officer of the bank, is aware that this stock-secured credit may be
subject to Regulation U, has read this form, has accepted the customer’s statement on Part I in good
faith as defined below1, and hereby certifies and affirms that to the best of his knowledge and belief all
the information contained on this form is true, accurate, and complete.
Date

SIGNED
(M anual sign ature)

( P r i n t o r ty p e n a m e

and title )

*
R egulation U requires that the custom er’s statem ent on this form be accepted by an officer of the bank acting in good
faith. Good fa ith requires that such officer (1) m ust be alert to the circum stances surrounding the credit, and ( 2 ) if he has
an y inform ation which would cause a prudent man not to accept the statem en t w ithout inquiry, has investigated and is satis­
fied that the statem en t is truthful. A m ong the fa cts w hich w ould require such investigation are receipt of the statement
th ough the mail or from a third party.

THIS FORM MUST BE RETAINED BY THE BANK FOR AT LEAST THREE YEARS AFTER THE
TERMINATION OF THIS CREDIT

46

STATUTORY APPENDIX

STATUTORY APPENDIX

serve System, (C) any other banking institution,
whether incorporated or not, doing business under
the laws of any State or of the United States, a
SECURITIES EXCHANGE ACT OF 1934
substantial portion of the business of which con­
sists of receiving deposits or exercising fiduciary
Act of June 6, 1934 (48 Stat. 881)
powers similar to those permitted to national banks
(U.S. Code, Title 15, Sec. 78)
under section 11 (k) of the Federal Reserve Act,
as amended, and which is supervised and ex­
Definitions
amined by State or Federal authority having
Sec. 3. (a) When used in this title, unless the
supervision over banks, and which is not op­
context otherwise requires—
erated for the purpose of evading the provisions
(1)
The term “exchange** means any organiza­ of this title, and (D ) a receiver, conservator, or
tion, association, or group of persons, whether
other liquidating agent of any institution or firm
incorporated or unincorporated, which constitutes,
included in clauses (A ), (B ), or (C) of this
maintains, or provides a market place or facilities
paragraph.
for bringing together purchasers and sellers of
* * *
securities or for otherwise performing with respect
(8) The term “issuer” means any person who
to securities the functions commonly performed
issues or proposes to issue any security; except
by a stock exchange as that term is generally
that with respect to certificates of deposit for
understood, and includes the market place and
securities, voting-trust certificates, or collateralthe market facilities maintained by such exchange.
trust certificates, or with respect to certificates of
* * *
interest or shares in an unincorporated investment
(3) The term “member” when used with re­
trust not having a board of directors or of the
spect to an exchange means any person who is
fixed, restricted management, or unit type, the
permitted either to effect transactions on the
term “issuer” means the person or persons per­
exchange without the services of another person
forming the acts and assuming the duties of de­
acting as broker, or to make use of the facilities
positor or manager pursuant to the provisions of
of an exchange for transactions thereon without
the trust or other agreement or instrument under
payment of a commission or fee or with the
which such securities are issued; and except that
payment of a commission or fee which is less than
with respect to equipment-trust certificates or like
securities, the term “issuer” means the person by
that charged the general public, and includes any
whom the equipment or property is, or is to be,
firm transacting a business as broker or dealer
used.
of which a member is a partner, and any partner
of any such firm.
(9) The term “person” means an individual, a
corporation, a partnership, an association, a joint(4) The term “broker” means any person en­
stock company, a business trust, or an unincorpo­
gaged in the business of effecting transactions in
rated organization.
securities for the account of others, but does not
(10) The term “security” means any note,
include a bank.
stock, treasury stock, bond, debenture, certificate
(5) The term “dealer” means any person en­
of interest or participation in any profit-sharing
gaged in the business of buying and selling secu­
agreement or in any oil, gas, or other mineral
rities for his own account, through a broker or
royalty or lease, any collateral-trust certificate,
otherwise, but does not include a bank, or any
preorganization certificate or subscription, trans­
person insofar as he buys or sells securities for
ferable share, investment contract, voting-trust
his own account, either individually or in some
certificate, certificate of deposit, for a security,
fiduciary capacity, but not as a part of a regular
or in general, any instrument commonly known
business.
as a “security”; or any certificate of interest or
(6) The term “bank” means (A) a banking
participation in, temporary or interim certificate
institution organized under the laws of the United
for, receipt for, or warrant or right to subscribe
States, (B) a member bank of the Federal Re­
to or purchase, any of the foregoing; but shall

47

STATUTORY APPENDIX
profit-sharing plan which meets the requirements
for qualification under section 401 of Title 26, or
(B) an annuity plan which meets the requirements
for the deduction of the employer’s contribution
under section 4 0 4 (a )(2 ) of Title 26, other than
any plan described in clause (A) or (B) of this
paragraph which covers employees some or all of
whom are employees within the meaning of section
4 0 1 (c )(1 ) of Title 26; and such other securities
(which may include, among others, unregistered
securities the market in which is predominantly
intrastate) as the Commission may, by such rules
and regulations as it deems necessary or appro­
priate in the public interest or for the protection
of investors, either unconditionally or upon speci­
fied terms and conditions or for stated periods,
exempt from the operation of any one or more
provisions of this chapter which by their terms do
not apply to an “exempted security” or to
“exempted securities.”
(13) The terms “buy” and “purchase’* each
include any contract to buy, purchase, or other­
wise acquire.
(14) The term “sale” and “sell” each include
any contract to sell or otherwise dispose of.
* * *
(16) The term “State” means any State of the
United States, the District of Columbia, Puerto
Rico, the Canal Zone, the Virgin Islands, or any
other possession of the United States.

not include currency or any note, draft, bill of
exchange, or banker’s acceptance which has a
maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any
renewal thereof the maturity of which is likewise
limited.
(11) The terrrt “equity security” means any
stock or similar security; or any security conver­
tible, with or without consideration, into such a
security; or carrying any warrant or right to sub­
scribe to or purchase such a security; or any such
warrant or right; or any other security which the
Commission* shall deem to be of similar nature
and consider necessary or appropriate, by such
rules and regulations as it may prescribe in the
public interest or for the protection of investors,
to treat as an equity security.
(12) The term “exempted security” or “ex­
empted securities” includes securities which are
direct obligations of or obligations guaranteed as
to principal or interest by the United States; such
securities issued or guaranteed by corporations in
which the United States has a direct or indirect
interest as shall be designated for exemption by the
Secretary of the Treasury as necessary or appro­
priate in the public interest or for the protection
of investors; securities which are direct obligations
of or obligations guaranteed as to principal or
interest by a State or any political subdivision
thereof, or by any agency or instrumentality of a
State or any political subdivision thereof, or any
municipal corporate instrumentality of one or
more States; or any security which is an industrial
development bond (as defined in section 103(c)
(2) of Title 26) the interest on which is excludable
from gross income under section 1 0 3 (a )(1) of
Title 26 if, by reason of the application of para­
graph (4) or (6) of section 103(c) of Title 26
(determined as if paragraphs (4) (A ), (5 ), and
(7) were not included in such section 1 0 3 (c)),
paragraph (1) of such section 103(c) does not
apply to such security; any interest or participa­
tion in any common trust fund or similar fund
maintained by a bank exclusively for the collective
investment and reinvestment and reinvestment of
assets contributed thereto by such bank in its
capacity as trustee, executor, administrator, or
guardian; any interest or participation in a col­
lective trust fund maintained by a bank or in a
separate account maintained by an insurance com­
pany which interest or participation is issued in
connection with (A ) a stock-bonus, pension, or

*

*

*

S ec. 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 in­
consistent with the provisions of this title.
*

*

*

[U.S.C., title 15, sec. 78c.]
Registration o f national securities exchanges

* As used here and elsewhere in the 1933 Act, “Com­
mission” means the Securities and Exchange Commission.

48

Sec. 6. (a) Any exchange may be registered
with the Commission as a national securities ex­
change 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 docu­
ments, below specified:
(1)
An agreement (which shall not be con­
strued as a waiver of any constitutional right or
any right to contest the validity of any rule or

STATUTORY APPENDIX
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 de­
tails. 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 thirtysix calendar months.
(b) Notwithstanding the provisions of subsec­
tion (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 accommo­
dation of commerce and industry, having due re­
gard to the general credit situation of the country,
and (2) prescribe such higher margin require­
ments 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, directly or indirectly, to extend or maintain
credit or arrange for the extension or mainte­
nance of credit to or for any customer—
(1) On any security (other than an exempted
security), in contravention of the rules and regu­
lations which the Board of Governors of the
Federal Reserve System shall prescribe under sub­
sections (a) and (b) of this section;
(2) Without collateral or on any collateral
other than securities, except in accordance with
such rules and regulations as the Board of Gov­
ernors of the Federal Reserve System may pre­
scribe (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 Sys­
tem, and (B) to permit the extension or mainte­
nance 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.

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 amend­
ment 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 dis­
ciplining 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 pro­
ceeding inconsistent with just and equitable prin­
ciples of trade.
(c) Nothing in this title shall be construed to
prevent any exchange from adopting and enforc­
ing any rule not inconsistent with this title and
the rules and regulations thereunder and the ap­
plicable laws of the State in which it is located.
*

*

*

[U.S.C., title 15, sec. 78f.]

Margin requirements
Sec. 7. (a) For the purpose of preventing the
excessive use of credit for the purchase or carry­
ing 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 there­
after, prescribe rules and regulations with respect
to the amount of credit that may be initially ex­
tended and subsequently maintained on any secu­
rity (other than an exempted security). For the
initial extension of credit, such rules and regula­
tions shall be based upon the following standard:
An amount not greater than whichever is the
higher of—
(1) 55 per centum of the current market price
of the security, or
(2) 100 per centum of the lowest market price
of the security during the preceding thirty-six
calendar months, but not more than 75 per
centum of the current market price.
Such rules and regulations may make appropri­
ate 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

49

STATUTORY APPENDIX

(d)
It shall be unlawful for any person not sub­
ject to subsection (c) to extend or maintain credit
or to arrange for the extension or maintenance
of credit for the purpose of purchasing or carry­
ing any security, in contravention of such rules
and regulations as the Board of Governors of the
Federal Reserve System shall prescribe to pre­
vent the excessive use of credit for the purchasing
or carrying of or trading in securities in circum­
vention of the other provisions of this section.
Such rules and regulations may impose upon all
loans made for the purpose of purchasing of
carrying securities limitations similar to those im­
posed upon members, brokers, or dealers by sub­
section (c) of this section and the rules and regu­
lations 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 ex­
empted 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 na­
tional 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 Gov­
ernors of the Federal Reserve System shall, by
such rules and regulations as it may deem neces­
sary or appropriate in the public interest or for
the protection of investors, exempt, either uncon­
ditionally or upon specified terms and conditions
or for stated periods, from the operation of this
subsection and the rules and regulations there­
under.
♦ * *
( f ) ( 1) It is unlawful for any United States
person, or any foreign person controlled by a
United States person or acting on behalf of or in
conjunction with such person, to obtain, receive,
or enjoy the beneficial use of a loan or other ex­
tension of credit from any lender (without regard
to whether the lender’s office or place of business
is in a State or the transaction occurred in whole
or in part within a State) for the purpose of (A)
purchasing or carrying United States securities, or
(B) purchasing or carrying within the United
States of any other securities, if, under this section
or rules and regulations prescribed thereunder, the
loan or other credit transaction is prohibited or
would be prohibited if it had been made or the
transaction had otherwise occurred in a lender’s
office or other place of business in a State.
(2) For the purposes of this subsection—

(A ) The term “United States person” includes
a person which is organized or exists under the
laws of any State or, in the case of a natural per­
son, 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.
(B) The term “United States security” means a
security (other than an exempted security) issued
by a person incorporated under the laws of any
State, or whose principal place of business is
within a State.
(C) 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 bene­
ficial interest, and any corporation in which one
or more United States persons, directly or indi­
rectly, 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)
The Board of Governors of the Federal Re­
serve System may, in its discretion and with due
regard for the purposes of this section, by rule or
regulation exempt any class of United States per­
sons or foreign persons controlled by a United
States person from the application of this sub­
section.
[U.S.C., title 15, sec. 78g.]

Restrictions on borrowing by members, brokers,
and dealers
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 busi­
ness as a broker or dealer on any security (other
than an exempted security) registered on a na­
tional 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 pro­
visions of this Act, the Federal Reserve Act, as
amended, and the Banking Act of 1933, which

50

STATUTORY APPENDIX

(d)
To lend or arrange for the lending of any
securities carried for the account of any custon._r
without the written consent of such customer.
[U.S.C., title 15, sec. 78h.]
* * *

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 Fed­
eral 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 oppor­
tunity for hearing, because of any failure by such
bank to comply with the provisions thereof or
with such provisions of law or rules or regula­
tions; and, for any willful violation of such agree­
ment, such bank shall be subject to the penalties
provided for violations of rules and regulations
prescribed under this title. The provisions of sec­
tions 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 as such provisions apply in the case
of proceedings and orders of the Commission.
(b) To permit in the ordinary course of busi­
ness 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 ex­
change 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 regula­
tions 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 securi­
ties 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 hypothe­
cated, or subjected to any lien or claim of the
pledgee, for a sum in excess of the aggregate in­
debtedness of such customers in respect to such
securities.

Segregation and limitation of functions
* * *
11. (d) It shall be unlawful for a mem­
ber 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 di­
rectly 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 par­
ticipated as a member of a selling syndicate or
group within thirty days prior to such transaction:
P o i e , That credit shall not be deemed ex­
rvdd
tended by reason of a bona f d delayed delivery
ie
of any such security against full payment of the
entire purchase price thereof upon such delivery
within thirty-five days after such purchase, * * *
[U.S.C., title 15, sec. 78k.]
* * *
Sec.

Registration of securities
* * *
Sec. 12. (f) * * * Any security for which un­
listed trading privileges are continued or extended
pursuant to this subsection shali be deemed to be
registered on a national securities exchange within
the meaning of this Title. * * *
[U.S.C., title 15, sec. 781.]

* * *

Accounts and records, reports, and
examinations
:je

*

Sec. 17. (b) Any broker, dealer, or other per­

son extending credit who is subject to the rules
and regulations prescribed by the Board of Gov­
ernors 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

51

STATUTORY APPENDIX

Validity of contracts

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 the Board may deem
necessary to enable it to obtain the required in­
formation.
[U.S.C., title 15, sec. 78q.]
*

*

Sec. 29. (a) Any condition, stipulation, or pro­
vision 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 ex­
change 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 right
of any person who, in violation of any such pro­
vision, 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 knowl­
edge 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 exten­
sion pf 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 re­
newal 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 knowl­
edge of the violation of any provision of this title
or any rule or regulation thereunder affecting the
legality of such debt, obligation, or lien.

*

Rules and regulations
Sec. 23. (a) The Commission and the Board
of Governors of the Federal Reserve System shall
each have power to make such rules and regula­
tions as may be necessary for the execution of
the functions vested in them by thjs title, and may
for such purpose classify issuers, securities, ex­
changes, and other persons or matters within their
respective jurisdictions. N o 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 Sys­
tem, notwithstanding that such rule or regulation
may, after such act or omission, be amepded or
rescinded or be determined by judicial or other
authority to be invalid for any reason.
* * *
[U.S.C., title 15, sec. 78w.]
* * *

Unlawful representations
Sec. 26. No action or failure to act by the
Commission or the Board of Governors of the
Federal Reserve System, in the administration of
this title shall be construed to mean that the par­
ticular authority has in any way passed upon the
merits of, or given approval to, any security or
any transaction or transactions therein, nor shall
such action or failure to act with regard to any
statement or report filed with or examined by such
authority pursuant to this title or rules and regula­
tions thereunder, be deemed a finding by such
authority that such statement or report is true
and accurate on its face or that it is not false or
misleading. It shall be unlawful to make, or cause
to be made, to any prospective purchaser or seller
of a security any representation that any such
action or failure to act by any such authority is
to be so construed or has such effect.
[U.S.C., title 15, sec. 78z.]

[U.S.C., title 15, sec. 78cc.]
Foreign securities exchanges
Sec. 30. (a) It shall be unlawful for any
broker or dealer, directly or indirectly, to make

52

STATUTORY APPENDIX

Penalties

use of the mails or of any means or instrumental­
ity of interstate commerce for the purpose of
effecting on an exchange not within or subject to
the jurisdiction of the United States, any transac­
tion in apy security the issuer of which is a resi­
dent of, or is organized under thp 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 necessaiy or
appropriate in the public interest or for the pro­
tection of investors or to prevent the evasion of
this title.

Sec. 32. (a) Any person who willfully violates
any provision of this title, or any rule or regula­
tion 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 under­
taking contained in a registration statement as
provided in subsection (d) of section 15 of this
title, which statement was false or misleading with
(b)
The provisions of this title or of any rule respect to any material fact, shall upon conviction
be fined not more than $10,000, or imprisoned
or regulation thereunder shall not apply to any
person insofar as he transacts a business in securi­
npt more than two years, or both, except that
ties without the jurisdiction of the United States,
when such person is an exchange, a fine not ex­
unless he trapsacts such business in contravention
ceeding $500,000 may be imposed; but no person
of such rules and regulations as the Commission
shall be subject to imprisonment under this section
may prescribe as necessary or appropriate to pre­
for the violation of any rule or regulation if he
vent the evasion of this title.
proves that he had no knowledge of such rule or
regulation.
[U.S.C., title 15, sec. 78dd.]
* * *

* * *
[U.S.C., title 15, sec. 78ff.]

53

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