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F ederal Reserve Bank
DALLAS. TEXAS

of

Dallas

75222

Circular No. 73-173
July 16, 1973

INTERPRETATION OF REGULATION T
(Same-Day Substitutions of Securities)

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

The Board of Governors of the Federal Reserve System
issued an interpretation of Regulation T "Credit by Brokers and
Dealers", effective June 15, 1973? in the format of questions and
answers on the same-day substitution rule in connection with
undermargined accounts, specifically those accounts subject to
Section 8(g).
The text of the interpretation, as it appeared in the
Federal Register on June 25, 1973s is reproduced in this attachment
for your information.
Yours very truly,
P. E. Coldwell,
President
Attachment

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

RULES AND REGULATIONS

m argin securities (m argin requirem ents
of 65 p e rc e n t), an d 50 percen t loan value
fo r exchange-listed convertible bonds,
while th e reten tio n req uirem en t for all
accounts is 70 p ercen t (release 30
p e rc e n t).
Q u e s t io n s a n d A n sw e r s o n t h e S a m e - dat
S u b s t it u t io n R u l e in C o n n e c t io n W it h
A c c o u n t s S u b j e c t t o S e c t i o n 220.8(g)

B ased o n m argin req u irem en ts as of N o­
vem ber 24, 1972 of 65 p ercen t (35 p ercen t
loan valu e) In th e general acco u n t and 50
percen t (50 p ercen t loan valu e) in th e sp ecial
con vertib le d eb t se cu rity accou n t, an d reten ­
tio n req u irem en ts w ith resp ect to w ith d raw ­
als in each accou n t of 70 p ercen t (30 p erceh t
r e le a s e ).
J u n e 1973

(In te rp re ta tio n o f R e g u la tio n T )

PART 220— CREDIT BY BROKERS AND
DEALERS
Same-day Substitutions of Securities
§ 220.129 A p p lic a b ilit y o f
sa m e -d a y
s u b s tit u tio n r u le to a c c o u n ts s u b je c t
to s e c t io n 2 2 0 . 8 ( g ) .

(a) T h e B oard h as been asked n u m er­
ous questions reg ard in g th e use of th e
sam e-day sub stitu tio n privilege in sec­
tion 220.3 (b) of R egulation T in connec­
tion w ith accounts su b ject to § 220.8(g),
generally, accounts h aving less th a n 40
p ercen t equity. P rio r to th e B o ard ’s
am endm ents, effective Septem ber 18,
1972 (37 F R 13972, 3, 4, Ju ly 15, 1972), a
custom er whose account was u n d erm a r­
gined to an y e x ten t w as allowed to sub­
stitu te one security fo r an o th er o n th e
sam e day, usually th ro u g h a sale an d
p u rch ase for like am ounts, w ith o u t being
required to im prove h is equity in th e ac­
count. T h e 1972 am endm ents lim it th is
privilege to accounts w ith a n equity of
40 p ercen t or m ore; as p resently set by
th e Board. Accordingly, if a custom er’s
equity is below 40 p ercent, h e is n o t eligi­
ble fo r th e sam e-day su b stitu tio n p riv ­
ilege, b u t is required to p u t up m argin
on any new com m itm ent, an d rete n tio n
req uirem ents are applied to any liquida­
tion, even th o u g h th e tran sactio n s are
effected on th e sam e day.
(b) T he questions raised w ith th e
B oard to u ch upon o th e r provisions of
regulation T as well th a t are affected by
th e S eptem ber 1972 am endm ent to th e
sam e-day su b stitu tio n ru le an d th e im ­
p ac t of th e am endm ent on these provi­
sions is also reflected in th e exam ples
sta te d below. Tn m aking com putations in
sim ilar situ atio ns It should be borne In
m ind th a t th e exam ples are based on a
c u rre n t lo an value of 35 percen t for

1. Q. C ustom er is lo n g $10,000 m argin s e ­
cu rities in h is general accou n t, w h ich h a s an
a d ju sted d eb it b alan ce o f $7,000. C ustom er
h a s an $8,000 b alan ce in h is sp ecial m iscel­
lan eou s accou n t. T h e general a cco u n t is su b ­
je c t to se ctio n 8 ( g ) . T h e cu stom er w ish es to
p u rch ase m argin se cu rities w orth $1,000 and
sell se cu rities w orth $1,000 o n th e sam e day.
W hat Is th e regu lation T m argin call if any?
A. $350, th e m argin required o n th e pur­
ch ase ($650) m in u s t h e m argin released o n
th e sale ($300) (n e t $350). T he call m ay be
m et by a d eb it to th e cu sto m er’s sp ecial m is­
cellan eou s accou n t.
2. Q. C ustom er is lo n g $10,000 m argin se ­
cu rities in h is gen eral a cco u n t w h ich h as an
a d ju sted d eb it b alan ce o f $9,000. C ustom er
h a s an $8,000 b alan ce in h is sp ecial m iscel­
lan eou s accou n t. T h e general a cco u n t is su b ­
je c t to se ctio n 8(g)'. May th e cred itor reduce
th e sp ecial m iscella n eo u s a cco u n t b alan ce to
a level a t w h ich tim e th e general a cco u n t
w ou ld n o lon ger b e su b ject t o se ctio n 8 (g ) ?
A. Tes; before su ch a d eb it to th e special
m iscella n eo u s a cco u n t is m ade, how ever, th e
creditor m ay w ish to o b ta in t h e w ritte n c o n ­
se n t o f th e cu stom er. T h e cu stom er sh ou ld
b e fu lly aware of th e procedure to be follow ed
by th e cred itor and t h a t su c h an a m o u n t
cou ld n o t be tran sferred back from th e g en ­
eral a cco u n t t o t h e sp ecial m iscellan eo u s
acco u n t a t a later d ate, u n less a n excess over
65 p ercen t m argin in t h e general a cco u n t
w ou ld p erm it a n oth er tran sfer.
3. Q. C u stom er’s a cco u n t h a s a regu la tio n
T m argin call w h ich w as o u tsta n d in g (and
n o t overdue) as o f t h e close o f b u sin ess o n
th e p reced in g b u sin ess day. In co m p u tin g
th e a cco u n t to d eterm in e if It is su b je c t to
se ctio n 8 ( g ) , m ay th e cred itor con sid er th e
o u tsta n d in g regu lation T m argin call as
collected ?
A. Yes, for th e p urpose o f co m p u tin g an
a cco u n t to d eterm in e w h eth er it i s su b ject
to se c tio n 8 ( g ) , th e creditor m ay give cred it
t o su c h an o u tsta n d in g regu lation T m argin
c a ll w h ich w ould red u ce th e a d ju sted d eb it
balan ce.
4. Q. C ustom er is lo n g $10,000 m argin se ­
cu rities in h is general a c co u n t w h ich h a s an
a d ju sted d eb it b alan ce o f $6,075. T h e acco u n t
is su b je c t to se ctio n 8 (g ) by a n a m o u n t less
th a n $100. H e w ish es t o p u rch ase m argin se ­
cu rities valu ed a t $1,000 an d se ll secu rities
valu ed a t $1,000 in th e a cco u n t o n th e sam e
day. W h at reg u la tio n T m argin call if any
sh ou ld b e issued?
A. $350. O nce th e d eterm in a tio n h as been
m ade t h a t a n a cco u n t is su b ject to se ctio n
8 ( g ) , p u rch ases in t h e general a cco u n t are
charged t h e m argin required, cu rren tly 65
p ercen t, an d sa les cu rren tly release 30 per­
cen t. T h e $100 ru le in se ctio n 220.3 (g)j(3)
d oes n o t ap p ly t o t h e 8 (g ) co m p u ta tio n .
5. Q. C ustom er’s a c c o u n t h a s an o u ts ta n d ­
in g m a in ten a n ce m argin ca ll. In co m p u tin g
t h e a cco u n t to d eterm in e If It is su b ject to
se ctio n 8 ( g ) , m ay t h e cred itor con sid er th e

FEDERAL REGISTER, VOL. 38, NO. 121— MONDAY, JUNE 25, 1973

RULES AND REGULATIONS
o u ts ta n d in g m a in te n a n c e m a r g in c a ll as
c o llec te d ?
A . N o; m a in te n a n c e m a r g in c a lls a re g e n ­
e ra lly c re d ite d to th e c u s to m e r’s s p e c ia l m is ­
c e lla n e o u s a c c o u n t, a n d a c c o rd in g ly , t h e
c o lle c tio n o f th e m a in te n a n c e m a r g in c a ll
w o u ld n o t c h a n g e th e a d ju s te d d e b it b a la n c e .
6. Q . C u s to m e r is lo n g $10,000 m a r g in se­
c u r itie s in h is g e n e ra l a c c o u n t w h ic h is
s u b je c t to s e c tio n 8 (g ) b y $100 a n d is in a
s o -c a lle d r e g u la r re s tr ic te d s ta tu s b y $2,600.
H e w ish es to s e ll s e c u ritie s w o rth $9,000 a n d
b u y m a r g in s e c u ritie s w o rth $9,0 00 o n th e
sam e d a y . T h e p u rc h a s e w o u ld r e q u ir e m a r ­
g in o f $5,850 a n d th e s ale w o u ld release $2,700
( n e t $ 3 ,1 5 0 ). I n w h a t a m o u n t s h o u ld th e
c re d ito r issue a re g u la tio n T m a r g in c a ll?
A . $2,600. T h e c u s to m e r w o u ld n o t b e re ­
q u ir e d to d e p o s it m o re th a n Is n e e d e d to
e lim in a te th e s o -c a lle d re g u la r r e s tr ic tio n .
7. Q . D oes a d e b it to t h e g e n e ra l a c c o u n t
a n d a c re d it to th e s p e c ia l m is c e lla n e o u s
a c c o u n t (S M A ) In c re a s e th e c u s to m e r’s a d ­
ju s te d d e b it b a la n c e ?
A . Y es; th e re fe re n c e to “ n e t d e b it b a l­
a n c e ” In s e c tio n 2 2 0 .3 (d ) (1 ) o f r e g u la tio n T ,
in c o n n e c tio n w it h t h e a d ju s te d d e b it b a l­
a n c e c o m p u ta tio n . In c lu d e s a n y a m o u n ts
d e b ite d to th e g e n e ra l a c c o u n t a n d c re d ite d
t o th e S M A . I t is q u ite po ss ib le fo r a n a c ­
c o u n t to b e s u b je c t to s e c tio n 8 (g ) as a
r e s u lt o f su c h e n trie s . F o r r e g u la to r y p u r ­
poses, t h e b a la n c e s o f t h e tw o a c c o u n ts
s h o u ld be s e p a ra te ly s ta te d , w h e th e r th e
c re d ito r m a in ta in s t h e S M A b y J o u rn a l o r
m e m o ra n d u m e n tr y m e th o d s .
S e c tio n 2 2 0 .4 (a ) p ro v id e s t h a t a c re d ito r
m a y e s ta b lis h a n S M A , th e p u rp o s e o f w h ic h
Is d e fin e d in p a ra g ra p h ( f ) ( 6 ) , p ro v id e d i t
Is re c o rd e d s e p a ra te ly , a n d c o n fin e d t o its
In te n d e d p u rp o s e , w it h a n a d e q u a te re c o rd
m a in ta in e d . P a ra g ra p h (a ) (3 ) f u r t h e r p ro ­
v id e s t h a t :
• • • I f a c u s to m e r h a s w it h a c re d i­
to r b o th a g e n e ra l a c c o u n t a n d o n e o r
m o re su c h s p e c ia l a c c o u n ts , t h e c re d ito r
s h a ll tr e a t e a c h s u c h s p e c ia l a c c o u n t as
i f th e c u s to m e r h a d w it h t h e c re d ito r
n o g e n e ra l a c c o u n t • * •
T h e a g re e m e n t b e tw e e n th e c re d ito r a n d
th e c u s to m e r s h o u ld c le a rly sh o w t h a t tw o
a c c o u n ts w i ll be m a in ta in e d a n d t h a t w h e n
tra n s fe rs o f a m o u n ts su c h as d iv id e n d s ,
m a in te n a n c e m a r g in c a lls , a n d excess a re
m a d e , th e g e n e ra l a c c o u n t a n d th e S M A a re
d e b ite d o r c re d ite d as th e case m a y be.
F u n d s c a n n o t b e fr e e ly tr a n s fe r re d b a c k a n d
fo r th . G e n e ra lly , w h ile fu n d s c a n a lw a y s be
tr a n s fe r re d fr o m t h e S M A to th e g e n e ra l
a c c o u n t, tra n s fe rs fr o m th e g e n e ra l a c c o u n t
to th e S M A c a n o n ly b e m a d e w h e n c e r ta in
sp e c ific e v e n ts o c c u r a n d c o n d itio n s a re m e t.
8. Q . C u s to m e r is lo n g $80,000 c o n v e rtib le
d e b t s e c u ritie s in a s p e c ia l c o n v e rtib le d e b t
s e c u rity a c c o u n t w h ic h h a s a n a d ju s te d d e b it
b a la n c e o f $50,000. T h e a c c o u n t Is s u b je c t
to s e c tio n 8 ( g ) . T h e c u s to m e r w ish es to p u r ­
chase $60,000 c o n v e rtib le d e b t s e c u ritie s
(w h ic h a re m a r g in a b le ) a n d s e ll $60,000
c o n v e rtib le d e b t s e c u ritie s o n th e sam e d a y .
W h a t is th e re g u la tio n T m a r g in c a ll I f a ny?
A . $10,000. T h e m a r g in c u r r e n tly re q u ire d
o n th e p u rc h a s e is $ 30,000 a n d th e m a r g in
c u r r e n tly relea s e d o n th e s ale is $18,000.
H o w e v e r, th e c u s to m e r w o u ld n o t b e re ­
q u ire d to d e p o s it m o re th a n is n e e d e d to
e lim in a te th e s o -c a lle d re g u la r r e s tr ic tio n o f
$10,000 in th e a c c o u n t.
9. Q . D oes th e 8 (g ) r u le a p p ly to th e
s p e cia l b o n d a cc o u n t?
A . N o ; in a s p e c ia l b o n d a c c o u n t, th e
m a x im u m lo a n v a lu e o f c o lla te r a l h e ld In th e
a c c o u n t is d e te rm in e d b y th e c re d ito r In
good f a it h , a n d th e r e te n tio n re q u ir e m e n t
w h ic h a p p lie s t o w ith d r a w a l o f s u c h c tri­

la t e r a l Is e q u a l to th e good f a it h lo a n v a lu e
a p p lie d b y th e c re d ito r.
10.
Q. C u s to m e r h a s a n a c c o u n t s u b je c t to
8 ( g ) a n d w ish es t o k n o w h o w m u c h h e c a n
b u y o r s e ll w ith o u t In c u r r in g a r e g u la tio n T
m a r g in c a ll.
A . ( 1 ) U n d e r th e c u r r e n t 65 p e rc e n t m a r ­
g in re q u ir e m e n t ( In th e g e n e ra l a c c o u n t),
(a )
T o d e te rm in e h o w m u c h a c u s to m e r
c a n b u y w it h th e proceed s o f a s ale In t h a t
a c c o u n t, a p p ly th is fo r m u la :

3 0 % (m a r g in r e ­
leased o n s a le )

2, 700

3 ,8 0 0

b . P u rc h a s e $ 8,0 00 X 6 5% m a r ­
g in r e q u ir e d ______________
S e ll $ 1 1 ,0 0 0 x 3 0 % m a r g in
r e le a s e d _________________

— 4 6.1 % (r o u n d o ff 4 6 % )

T h u s , a sale o f $10,000 w o u ld p e r m it a p u r ­
chase o f $4,600.
P ro o f:
M a r g in
relea s e d
on
s ale
of
$10,000 ________________________ $ 3 ,0 0 0
M a r g in re q u ir e d o n p u rc h a s e o f
$ 4,6 00 _________________________
2 ,9 9 0
(b )
T o d e te rm in e h o w m u c h a c u s to m e r
w o u ld h a v e to s e ll to m e e t th e m a r g in re ­
q u ir e m e n t o n
a
p u rc h a s e ,
a p p ly
th is
fo r m u la :
6 5 % (m a r g in
r e q u ir e d o n
p u rc h a s e )

R e g u la tio n T m a r g in
c a U _________________

$6, 500

= 2 1 6 % % (r o u n d o f f 2 1 7 % )

2. I n

3, 3 00

R e g u la tio n T m a rg in
c a l l _________________

3 0 % (m a r g in r e ­
le a s ed o n s ale )
6 5 % (m a r g in
re q u ire d o n
p u rc h a s e )

Illustrations
1. I n a g e n e ra l a c c o u n t
a . P u rc h a s e
$ 10 ,00 0 X 6 5%
m a r g in re q u ir e d _________
S e ll $ 9,0 00 X 3 0%
m a r g in
r e le a s e d _________________

1 ,9 0 0

a s p e c ia l c o n v e rtib le d e b t
s e c u rity a c c o u n t
a. P u rc h a s e $ 6,0 00 X 50% m a r ­
g in re q u ir e d _____________
S e ll $5,000 X 3 0 %
m a r g in
r e le a s e d _________________
R e g u la tio n T m a rg in
c a l l _________________
b . P u rc h a s e $ 7,0 00 X 5 0% m a r ­
g in r e q u ir e d _____________
S e ll $9,0 00 X 3 0 %
m a r g in
r e le a s e d _________________

5, 200

3 , 000
1, 500

1 ,5 0 0

3, 500
2 , 700

R e g u la tio n T m a rg in
c a l l ..................................
800
T h u s , a p u rc h a s e o f $10,000 w o u ld r e q u ire
a sale o f $ 21,667.
P ro o f:
12. Q . C u s to m e r’s g e n e ra l a c c o u n t w h ic h is
M a r g in re q u ire d o n p u rc h a s e o f
s u b je c t to s e c tio n 8 ( g ) In c lu d e s a s h o rt p o s i­
$10,000 ________________________ $ 6 ,5 0 0
t io n in s to c k A o f 100 sh ares a t 100 (m a r k e t
M a rg in
re le a s e d
on
sale
of
v a lu e $ 1 0 ,0 0 0 ). C u s to m e r b u y s 200 sh ares o f
6 ,5 0 0
$21 ,66 7 ________________________
t h e sam e s to c k a n d m a in ta in s h is s h o rt p o s i­
(2 ) U n d e r th e c u r r e n t 50 p e rc e n t m a rg in
t io n , w h ic h re s u lts in a lo n g p o s itio n o f 200
re q u ir e m e n t ( In t h e s p e c ia l c o n v e rtib le d e b t
s h a re s o f w h ic h 100 sh ares is c o n s id ere d th e
s e c u rity a c c o u n t),
lo n g side o f t h e s h o rt sale “ a g a in s t th e b o x ."
(a )
T o d e te rm in e h o w m u c h a c u s to m e r D oes th is tr a n s a c tio n r e s u lt in th e Issu an ce
c a n b u y w it h th e proceeds o f a sale in t h a t
o f a r e g u la tio n T m a r g in c a ll a n d f o r h o w
a c c o u n t, a p p ly th is fo r m u la :
m uch?
A . Yes; th e c u s to m e r w o u ld in c u r a r e g u la ­
t io n T m a r g in c a ll o f $6,5 00 , th e m a r g in re ­
= 6 0%
q u ir e d o n th e n e w n e t c o m m itm e n t o f 100
5 0% (m a r g in re q u ire d
shares lo n g . B ecause th e c u s to m e r’s a c c o u n t
o n p u rc h a s e )
Is s u b je c t t o s e c tio n 8 ( g ) , th e r e te n tio n re ­
q u ir e m e n t
p ro v is io n
In
th e
r e g u la tio n
T h u s , a sale o f $10,000 w o u ld p e r m it a p u r ­
(w h ic h does n o t p ro v id e fo r a n y relea s e o n
chase o f $6,000.
t h e c o v e rin g o f a s h o rt p o s itio n ) w o u ld
P ro o f:
a p p ly .
M a r g in
relea s e d
on
sale
of
13. Q . C u s to m e r’s g e n e ra l a c c o u n t Is s u b ­
$10,000 ________________________ $ 3 ,0 0 0
je c t to s e c tio n 8 (g ) a n d h e w ish es to b u y
M a r g in re q u ire d o n p u rc h a s e o f
$ 6,0 00 _________________________
3 ,0 0 0
a n d s e ll th e sam e s to c k o n th e sam e d a y
(b )
T o d e te rm in e h o w m u c h a c u s to m e r (d a y t r a d e ) . M a y h e do so w ith o u t fu r n is h in g
a d d itio n a l m a r g in u n d e r re g u la tio n T ? (T h is
w o u ld h a v e to s e ll t o m e e t th e m a r g in r e ­
q u e s tio n assum es t h a t th e c u s to m e r c o u ld
q u ir e m e n t
on
a
p u rc h a s e ,
a p p ly
th is
e ffe c t su c h a d a y tr a d e in c o n fo rm a n c e w ith
f o r m u la :
e xc h a n g e r e q u ire m e n ts .)
5 0% (m a r g in
A . N o ; re g u la tio n T in p ro v id in g fo r tr a n s ­
re q u ire d o n
a c tio n s o n a g iv e n d a y in s e c tio n 2 2 0 .3 (g )
p u rc h a s e )
does n o t d is tin g u is h b e tw e e n sam e o r d iffe r ­
= 1 6 6 % % (r o u n d o ff 1 6 7 % )
3 0 % (m a r g in r e ­
e n t s e c u ritie s . T h e re fo re , th e a m o u n t o f d e ­
leased o n s ale )
p o s it r e q u ire d w o u ld be c o m p u te d o n th e
basis o f th e m a r g in re q u ire d o n th e p u rc h a s e
T h u s , a p u rc h a s e o f $10,000 w o u ld r e q u ire
less th e a m o u n t relea s e d o n th e sale o f th e
a sale o f $16,700.
sam e s to c k .
P ro o f:
14. Q . M a y t h e a m o u n t d e p o s ite d to m e e t
M a r g in re q u ir e d o n p u rc h a s e o f
a r e g u la tio n T m a r g in c a ll In a n a c c o u n t
$10,000 ________________________ $ 5 ,0 0 0
s u b je c t to s e c tio n 8 (g ) be c re d ite d t o th e
M a r g in
relea s e d o n sale
of
c u s to m e r’s s p e c ia l m is c e lla n e o u s a c c o u n t?
$16,700 ________________________
5 ,0 1 0
11.
Q. A re g u la tio n T m a r g in c a ll Is Issued A . N o ; a n y re g u la tio n T m a r g in c a ll m u s t
as a r e s u lt o f a s a m e -d a y s u b s titu tio n o c c u r­
be c re d ite d d ir e c tly to th e a c c o u n t w it h re ­
r in g In a n a c c o u n t t h a t Is s u b je c t to s e c tio n
s p e c t t o w h ic h th e c a ll w as Issued a n d m a y
8 ( g ) . W h a t c o m p u ta tio n la re q u ire d ?
n o t be tr a n s fe r re d t o th e c u s to m e r’s s p e cia l
m is c e lla n e o u s a c c o u n t.
A . T h e a m o u n t m a y b e d e te rm in e d b y
a p p ly in g th is fo r m u la :
15. Q . C u s to m e r’s g e n e ra l a c c o u n t Is s u b ­
Less:
je c t to s e c tio n 8 ( g ) . H e e ffec ts a s a m e -d a y
M a r g in r e q u ir e d o n c o m m itm e n t
s u b s titu tio n b y liq u id a t in g s e c u ritie s w o rth
M a r g in relea s e d o n liq u id a tio n
$ 21 ,33 4 , th e re b y re le a s in g 30 p e rc e n t ($ 6 ,4 0 0 ),
E q u a ls : R e g u la tio n T m a r g in c a ll
a n d p u rc h a s in g m a r g in s e c u ritie s w o rth
3 0% (m a r g in relea s e d
o n s a le )

FEDERAL REGISTER, VOL. 3 8 , NO. 121— MONDAY, JUNE 2 5 , 1 9 7 3

RULES AND REGULATIONS
$10,000, th e re b y r e q u ir in g m a r g in o f 65 p e r­
c e n t ($ 6 ,5 0 0 ). M u s t th e c u s to m e r d e p o s it th e
$100 d iffe re n c e ?
A . N o; th e c re d ito r m a y w a iv e a re g u la tio n
T m a r g in c a ll o f $100 o r less.
16. Q . C u s to m e r’s s p e c ia l c o n v e rtib le d e b t
s e c u rity a c c o u n t is s u b je c t t o s e c tio n 8 ( g ) .
H is g e n e ra l a c c o u n t is in a s o -c a lle d re s tric te d
s ta tu s b u t n o t s u b je c t t o s e c tio n 8 ( g ) . M a y
he e ffe c t a s a m e -d a y s u b s titu tio n o f s e c u ri­
tie s in lik e a m o u n ts in h is g e n e ra l a c c o u n t
w it h o u t in c u rr in g a r e g u la tio n T m a rg in
c all?
A . T e s . E a c h a c c o u n t is c o m p u te d sep a­
r a te ly , e ith e r o n e o f w h ic h m a y o r m a y n o t
be s u b je c t t o s e c tio n 8 ( g ) .
17. Q . C u s to m e r’s g e n e ra l a c c o u n t is s u b ­
je c t to s e c tio n 8 (g ) a n d h e has a $200 b a l­
ance in h is s p e cia l m is c e lla n e o u s a c c o u n t.
M a y h e w ith d r a w th e $200?
A . Y es; re g u la tio n T w o u ld n o t p re v e n t
su ch a w ith d r a w a l. H o w e v e r, exc h a n g e a n d
c re d ito r re q u ire m e n ts s h o u ld be c o n s id ere d .
18. Q . A c u s to m e r’s g e n e ra l a c c o u n t is
p ric e d as o f th e p re v io u s n ig h t ’s close o f
bu sin ess a n d is s u b je c t to s e c tio n 8 (g ) b y
$300. O n th e c u r re n t d a y , m a y t h e c u s to m e r
d e p o s it $300 d ire c tly in t o h is g e n e ra l a c c o u n t
a n d s u b s e q u e n tly e ffe c t a s a m e -d a y s u b s titu ­
tio n o f m a r g in s e c u ritie s w ith o u t in c u rr in g
a r e g u la tio n T m a r g in c all?
A . N o ; w h e n a n a c c o u n t is s u b je c t to sec­
t io n 8 ( g ) , a d e p o s it o n th e c u r re n t d a y o f
th e a m o u n t b y w h ic h th e a c c o u n t is s u b je c t
to s e c tio n 8 ( g ) w o u ld n o t e lim in a te th e
s e c tio n 8 ( g ) r e s tr ic tio n . A c c o rd in g ly , a re g u ­
la t io n T m a r g in c a ll s h o u ld be issued in th e
a p p ro p ria te a m o u n t i f th e re is e ffe c te d in
th e a c c o u n t a s a m e -d a y s u b s titu tio n o f m a r ­
g in s e c u ritie s .
19. Q . C u s to m e r is lo n g a p ro fita b le c a ll
o p tio n o n 100 shares o f m a rg in s to c k A a t
50 in h is g e n e ra l a c c o u n t w h ic h is s u b je c t
t o s e c tio n 8 ( g ) . H e w ish es to exercise th e
o p tio n a n d h o ld th e s to c k w h ic h is c u r re n tly
a t 55. W h a t is th e r e g u la tio n T m a r g in c a ll
if any?
A . $3,250, th e m a rg in re q u ire d o n th e p u r ­
chase o f $5,000. I n p r ic in g th e a c c o u n t s u b ­
s e q u e n t to th e p u rc h a s e , lo a n v a lu e w o u ld
b e a p p lie d to th e s to c k ’s c u r r e n t m a r k e t
v a lu e o f $5,500.
20. Q . C u s to m e r is lo n g a p ro fita b le c a ll
o p tio n o n 100 shares o f m a r g in s to c k B a t
50 in h is g e n e ra l a c c o u n t w h ic h is s u b je c t
to s e c tio n 8 ( g ) . H e w ish es to exercise th e
o p tio n b y b u y in g s to c k B a t 50 a n d s e llin g
s to c k B a t 55 o n th e sam e d a y . W h a t is th e
re g u la tio n T m a rg in c a ll i f an y?
A . $1,600, th e m a r g in re q u ire d o n th e p u r ­
chase ($ 3 ,2 5 0 ) m in u s th e m a r g in relea s e d o n
th e B a le ($ 1 ,6 5 0 ).
2 1 . Q . Is i t p o ssib le u n d e r re g u la tio n T fo r
a c u s to m e r w h o is lo n g a p ro fita b le o p tio n
In h is g e n e ra l a c c o u n t w h ic h is s u b je c t to
s e c tio n 8 (g ) to te r m in a te h is p o s itio n in th e
o p tio n a n d h a v e Im m e d ia te access t o th e
fu n d s re p re s e n tin g th e p ro fit?
A . Y e s; h e m a y give In s tru c tio n s to h is
b ro k e r t o tr a n s fe r th e o p tio n fr o m h is g e n ­
e ra l a c c o u n t t o h is s p e c ia l cash a c c o u n t
w h e re h e c o u ld s e ll th e o p tio n its e lf e ith e r
b a c k t o th e b ro k e r o r to o th e rs .
22. Q . A c u s to m e r’s g e n e ra l a c c o u n t is s u b ­
je c t to s e c tio n 8 ( g ) . M a y h e tr a n s fe r a p r o fit ­
a b le c a ll o p tio n fr o m h is g e n e ra l a c c o u n t t o
h is s p e c ia l cash a c c o u n t w h e re h e w o u ld e x ­
ercise it?
A . Y es; p ro v id e d t h a t f u l l cash p a y m e n t fo r
t h e p u rc h a s e d s to c k is a v a ila b le in th e spe­
c ia l cash a c c o u n t o r is d e p o s ite d p r o m p tly .
S u c h p a y m e n t m u s t b e d e p o s ite d In th e
s p e c ia l cash a c c o u n t p r io r t o th e relea s e o f
th e proceed s o f t h e re s a le o f th e s e c u rity , i f
th e c u s to m e r w ish es to liq u id a te th e p o s itio n
In th e s e c u rity a c q u ire d u p o n exe rc is e.
2 3. Q . C u s to m e r is s h o rt a n u n c o v e re d c a ll
o p tio n o n 100 sh ares o f s to c k O w it h a s t r ik ­

in g p ric e o f 50 in h is g e n e ra l a c c o u n t w h ic h is
s u b je c t to s e c tio n 8 ( g ) . H is n e t d e b it b a l­
a n ce w as re d u c e d b y $ 1,5 00 (3 0 p e rc e n t
m a rg in r e q u ir e m e n t) w h e n th e s h o rt o p tio n
p o s itio n w as ta k e n (m a d e u p b y re c e ip t o f
$500 p re m iu m a n d a d d itio n a l d e p o s it o f
$1,000, b o th c re d ite d to th e g e n e ra l a c c o u n t).
P re s e n tly , th e m a r k e t v a lu e o f s to c k C is u p
to 60 a n d c u s to m e r’s a d ju s te d d e b it b a la n c e
n o w in c lu d e s $2,800 ($ 6 ,0 0 0 X 3 0 p e rc e n t =
$ 1,800 p lu s th e m a r k to th e m a r k e t loss o f
$ 1 ,0 0 0 ). T h e c a ll is e xe rc is ed a g a in s t h im a t
60 a n d c u s to m e r p u rc h a s e s th e s to c k a n d
d e liv e rs i t th e sam e d a y . W h a t is th e re g u ­
la tio n T m a rg in c a ll, i f any?
A . $2,400, th e m a r g in re q u ire d o n th e p u r ­
chase o f s to c k C ($ 3 ,9 0 0 ) m in u s th e m a r g in
relea s e d o n th e sale o f s to c k C ($ 1 ,5 0 0 ). W h e n
a n a c c o u n t is s u b je c t to s e c tio n 8 ( g ) , th e
r e te n tio n r e q u ir e m e n t p ro v is io n s in th e re g ­
u la tio n do n o t p ro v id e fo r a n y relea s e o f a n y
p o rtio n o f th e a m o u n t in c lu d e d in th e a d ­
ju s te d d e b it b a la n c e c o m p u ta tio n in c o n ­
n e c tio n w it h th e o p tio n p r io r to its exercise.
T h e a c c o u n t, o f course, m a y s u b s e q u e n tly be
r e flg u re d fo r a n y re g u la tio n T excess.
24. Q . C u s to m e r’s a c c o u n t is th e sam e as in
q u e s tio n 23. H o w e v e r, w h e n th e c a ll is e x e r­
cised a g a in s t h im a t 60, c u s to m e r b o rro w s th e
sto c k fo r d e liv e ry ( w it h o u t b u y in g i n ) , th e r e ­
b y e s ta b lis h in g a s h o rt p o s itio n in s to c k C .
W h a t is th e r e g u la tio n T m a r g in c a ll i f a ny?
A . $3,250, th e m a rg in re q u ire d o n t h e n e w ly
e s ta b lis h e d s h o rt p o s itio n in s to c k C . H e re ,
to o , because' th e a c c o u n t is s u b je c t to sec­
tio n 8 ( g ) , th e re g u la tio n w o u ld n o t p e r m it
th e b ro k e r to o ffs e t th e r e g u la tio n T m a rg in
c a ll b y a n y p o rtio n o f th e a m o u n t p re v io u s ly
in c lu d e d in th e a d ju s te d d e b it b a la n c e c o m ­
p u ta tio n in c o n n e c tio n w it h th e o u ts ta n d in g
o p tio n p r io r to its exercise. I t s h o u ld b e f u r ­
t h e r n o te d t h a t s u b s e q u e n t to th e exercise
a n d d u rin g th e tim e th e c u s to m e r m a in ta in s
th e s h o rt p o s itio n in s to c k C , th e a d ju s te d
d e b it b a la n c e c o m p u ta tio n fo r th e s h o rt p o s i­
tio n w o u ld be based o n th e c u r re n t m a r k e t
v a lu e o f th e s e c u rity .
25. Q . C u s to m e r’s a c c o u n t is th e sam e as in
q u e s tio n 23. H o w e v e r, w h e n th e c a ll is e x e r­
cised, th e c u s to m e r assum es a s h o rt p o s itio n
o f 100 shares in s to c k C . L a te r in th e d a y th e
c u s to m e r covers h is s h o rt p o s itio n b y p u r ­
c h a s in g o n th e o p en m a r k e t 100 shares o f
s to c k C a t 60. W h a t is th e r e g u la tio n T m a r ­
g in c a ll, i f any?
A . $2,400, th e m a rg in re q u ire d o n th e p u r ­
chase o f s to c k C ($ 3 ,9 0 0 ) m in u s th e m a rg in
relea s e d o n th e sale o f s to c k C ($ 1 ,5 0 0 ).
26. Q . C u s to m e r Is s h o rt a n u n c o v e re d c a ll
o p tio n o n 100 shares o f s to c k D w ith a s t r ik ­
in g p ric e o f 50 in h is g e n e ra l a c c o u n t w h ic h
is s u b je c t to s e c tio n 8 ( g ) . H is n e t d e b it b a l­
an ce w as re d u c e d b y $1,500 (3 0 p e rc e n t m a r ­
g in r e q u ir e m e n t) w h e n th e s h o rt o p tio n p o s i­
t io n w as ta k e n . P re s e n tly , th e m a r k e t v a lu e
o f s to c k D Is d o w n to 40 a n d c u s to m e r’s a d ­
ju s te d d e b it b a la n c e n o w in c lu d e s $200
($ 4 ,0 0 0 X 3 0 p e r c e n t= $ 1 ,2 0 0 m in u s th e m a rk
to th e m a r k e t g a in o f $ 1 ,0 0 0 ). T h e h o ld e r o f
th e o p tio n a llo w s i t to e x p ire . M a y th e cus­
to m e r w h o is s h o rt t h e o p tio n w ith d r a w a n y
p o rtio n o f th e a m o u n t In c lu d e d as m a r g in In
th e a d ju s te d d e b it b a la n c e c o m p u ta tio n in
c o n n e c tio n w it h th e o p tio n o r use th e
a m o u n t a g a in s t a n o th e r tra n s a c tio n ?
A . N o . W h e n a n a c c o u n t is s u b je c t to sec­
tio n 8 ( g ) , th e r e te n tio n re q u ir e m e n t p r o v i­
sion s in th e R e g u la tio n do n o t p ro v id e fo r
a n y release o f a n y p o r tio n o f th e a m o u n t in ­
c lu d e d as m a rg in In th e a d ju s te d d e b it b a l­
a n c e c o m p u ta tio n in c o n n e c tio n w it h th e
o p tio n .

B y order of th e Board of Governors,
June 15, 1973.
[seal]
C h e s t e r B. F e l d b e r g ,
Assistant Secretary of the Board.
[ F R D o c.73—
12713 P ile d 6 -2 2 -7 3 ;8 :4 5 a m ]

FEDERAL REGISTER, VOL. 3 8 , NO. 121 — MONDAY, JUNE 2 5 , 1 9 7 3

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