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F ed er a l Reser ve Ba n k

DALLAS, TEXAS

of

Dallas

7S222
Circular No. 7*+-327
December 10, 197*+

INTERPRETATION OF REGULATION G

To All Banks, Brokers/Dealers, Regulation G-Registrants
and Others Concerned in the Eleventh Federal Reserve District:
The Board of Governors of the Federal Reserve System has
issued an interpretation of its Regulation G, "Securities Credit
By Persons Other Than Banks, Brokers, or Dealers", regarding
extensions of credit in certain stock option and stock purchase
plans.
Enclosed is a copy of the interpretation of Regulation G;
additional copies will be furnished upon request.

Yours very truly,
Ernest T. Baughman,

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 BY PERSONS
OTHER THAN BANKS, BROKERS, OR DEALERS

INTERPRETATION OF REGULATION G

E X T E N S IO N S O F C R E D I T IN C E R T A I N
STO C K O P T IO N A N D STO C K
PU R C H A SE PLANS
§ 2 0 7 .1 0 9 Q uestions h av e b een raised as to
w h e th e r c e rta in sto ck o p tio n a n d stock p u rc h a s e
plans involve extensions o f c red it subject to R e g u ­
la tio n G w h en th e p a rtic ip a n t is fre e to cancel his
p a rtic ip a tio n a t a ny tim e p rio r to fu ll p a y m e n t,
b u t in th e ev e n t o f c a n c e lla tio n th e p a rtic ip a n t
re m a in s liable fo r d am ages. I t th u s ap p e a rs th a t
the p a rtic ip a n t h as th e o p p o rtu n ity to gain an d
bears th e risk o f loss f r o m th e tim e th e tra n sa c tio n
is ex ecu ted a n d p a y m e n t is d e fe rred . I n som e
cases b ro u g h t to th e B o a rd ’s a tte n tio n d am ag es
are re la te d to th e m a rk e t p ric e o f th e sto ck b u t in
others, th e re m a y be n o su ch relationship . In

e ith e r o f th e se circ u m stan ce s, it is th e B o a rd ’s
view th a t su ch pla n s involve extensions o f credit.
A cco rd in g ly , w h e re th e secu rity b ein g p u rc h a sed
is a m a rg in secu rity a n d th e c re d it is secured,
d irectly o r indirectly, b y a n y m a rg in security, the
c re d ito r m u s t reg ister a n d th e cre d it m u s t co n fo rm
w ith e ith e r th e re g u la r m a rg in re q u ire m e n ts o f
section 2 0 7 .1 ( c ) o r th e special “p la n -le n d e r” p ro ­
visions set fo rth in sectio n 2 0 7 .4 ( a ) o f th e re g u ­
lation, w h ich e v e r is ap p licab le. T h is assum es, o f
course, th a t th e a m o u n t o f c red it ex te n d e d is
su c h th a t th e c re d ito r is su b ject to th e reg istratio n
re q u ire m e n ts o f sectio n 2 0 7 .1 ( a ) o f th e re g u la ­
tion.

1 2 /2 /7 4

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