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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