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F ederal Reserve

bank of




Circular No. 73-111
May 11, 1973

(independent Broker/Dealers Arranging Credit in Connection
With the Sale of Insurance Premium Funding Programs)

To All Banks, Broker/Dealers, and Others
Concerned in the Eleventh Federal Reserve District:

Printed on the reverse is a copy of an interpretation of
Regulation T, "Credit by Brokers and Dealers," relating to indepen­
dent broker/dealers who arrange credit in connection with the sale
of Insurance premium funding programs.

Yours very truly,
P. E. Coldwell,

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




Section 220.127 Independent b roker/dealers
arranging credit in connection w ith the sale o f
insurance prem ium funding programs.
(a) The Board’s September 5, 1972 clarifying
amendment to section 220.4(k) set forth that
creditors who arrange credit for the acquisition of
mutual fund shares and insurance are also per­
mitted to sell mutual fund shares without insur­
ance under the provisions of the special cash
account. It should be understood, of course, that
such account provides a relatively short credit
period of up to seven business days even with
so-called cash transactions. This amendment was
in accordance with the Board’s understanding in
1969, when the insurance premium funding pro­
visions were adopted in section 220.4(k), that
firms engaged in a general securities business
w ould not also be engaged in the sale and
arranging of credit in connection with such insur­
ance premium funding programs.
(b) The 1972 amendment eliminated from sec­
tion 220.4(k) the requirement that, to be eligible
for the provisions of the section, a creditor had to
be the issuer, or a subsidiary or affiliate of the
issuer, of programs which combine the acquisition
of both mutual fund shares and insurance. Thus
the amendment permits an independent broker/
dealer to sell such a program and to arrange for
financing in that connection. In reaching such
decision, the Board again relied upon the earlier
understanding that independent broker/dealers
who would sell such programs would not be en­
gaged in transacting a general securities business.

(c) In response to a specific view recently ex­
pressed, the Board agrees that under Regulation
“. . . a broker/dealer dealing in special insur­
ance premium funding products can only
extend credit in connection with such prod­
ucts or in connection with the sale of shares
of registered investment companies under the
cash accounts . . . [and] cannot engage in the
general securities business or sell any securi­
ties other than shares . . . [in] registered
investment companies through a cash account
or any other manner involving the extension
of credit.”
(d) There is a way, of course, as has been indi­
cated, that an independent broker/dealer might
be able to sell other than shares of registered in­
vestment companies without creating any conflict
with the regulation. Such sales could be executed
on a “funds on hand” basis and in the case of
payment by check, would have to include the
collection of such check. It is understood from
industry sources, however, that few if any in­
dependent broker/dealers engage solely in a
“funds on hand” type of operation.

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