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F ederal Reserve bank of DALLAS, TEXAS Dallas 75222 Circular No. 73-111 May 11, 1973 INTERPRETATION OF REGULATION T (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, President 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 CREDIT BY BROKERS AND DEALERS INTERPRETATION OF REGULATION T 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 T: “. . . 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. 4 /1 2 /7 3 * * * * *
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