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Fe d e r a l r e s e r v e b a n k o f Da l l a s DALLAS, TEXAS Dallas, Texas, June 9, 1953 AMENDMENT TO REGULATION U To All Banking Institutions in the Eleventh Federal Reserve District: The Board o f Governors of the Federal Reserve System has adopted Amendment No. 12 to Regulation U. The amendment is effective August 1, 1953, and relates to “ redeemable securities” of open-end investment companies. The press statement issued in connection with such action is quoted b elow : “ The Board has adopted an amendment to Regulation U, the regu lation which prescribes margin requirements (currently 5 0 % ) on loans by banks for the purpose of purchasing or carrying stocks registered on a national securities exchange. A copy o f the amendment is attached. “ The amendment makes it clear that the regulation applies to loans for the purpose o f purchasing or carrying certain shares issued by open-end investment companies whose assets customarily include regis tered stocks. The shares affected give the purchaser a proportionate interest in the issuing company’s assets, and carry the right to convert his interest into the company’s underlying assets or their cash equivalent. Such shares are technically called ‘redeemable securities.’ “ The action does not affect Regulation T , which, among other things, forbids securities brokers and dealers to lend on securities not registered on a national securities exchange. Therefore, ‘redeemable securities’ of open-end investment companies cannot be given loan value by brokers or dealers unless they are registered on a national securities exchange, which rarely is the case. And, of course, this action does not affect sec tion 11 (d ) (1 ) of the Securities Exchange Act o f 1934 which prohibits a broker-dealer from extending credit, or arranging for the extension of credit, on any security which was part o f a new issue in the distribu tion of which he participated within the preceding six months.” The text of the amendment to the Regulation is printed on the reverse side o f this letter. Member banks are requested to insert the new amendment in their ring binders containing the Regulations of the Board o f Governors and the Bulletins of this bank. Yours very truly, R. R. G IL B E R T , President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) LOANS BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING STOCKS REGISTERED ON A NATIONAL SECURITIES EXCHANGE AMENDMENT NO. 12 TO REGULATION U ISSU ED B Y TH E B O A R D OF G O VE R N O RS OF TH E F E D E R A L R E S E R V E SYSTEM Effective August 1, 1953, subsections (b ) and (c ) o f section 3 o f Regula tion U are hereby amended to read as follow s: “ (b ) (1 ) N o loan, however it may be secured, need be treated as a loan for the purpose o f ‘carrying’ a stock registered on a national securi ties exchange unless the loan is as described in section 3 ( b ) ( 2 ) or the purpose of the loan is to enable the borrower to reduce or retire indebt edness which was originally incurred to purchase such a stock, or, if he be a broker or a dealer, to carry such stocks for customers. “ (2 ) A loan for the purpose o f purchasing or carrying a ‘redeem able security’ (i.e. a redeemable proportionate interest in the issuer’s assets) issued by an ‘open-end company’, as defined in the Investment Company A ct o f 1940, whose assets customarily include stocks regis tered on a national securities exchange, shall be deemed to be for the purpose o f purchasing or carrying a stock so registered. “ ( c ) In determining whether or not a security is a ‘stock registered on a national securities exchange’ or a ‘redeemable security’ described in section 3 (b ) ( 2 ) , a bank may rely upon any reasonably current record o f such securities that is published or specified in a publication o f the Board o f Governors o f the Federal Reserve System.”
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