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F e d e r a l R e s e r v e Ba n k
DALLAS, TEXAS

of

Dallas

75222

Circular No. 7^-111
April 2 6 , 197^

REGULATION G
(Securities Credit by Persons Other
Than Banks, Brokers, or Dealers)

To All Nonbank Lenders and Others Concerned
in the Eleventh Federal Reserve District:
This is our annual circularization of our entire mailing
list of certain lenders in the Eleventh Federal Reserve District,
with a reminder of the registration requirements of Regulation G.
A discussion of these requirements is included with this circular
for your information.
As noted in our Circular No. 73-87 of April 26, 1973? we
regularly circularize changes in the Federal Reserve Regulation G
only to those persons or firms that are registered under the regu­
lation, except when the materials affect registration requirements
themselves.
Inquiries concerning Regulation G by any lender, whether
registered or not, can be directed to the Regulations Department,
Margin - International Group, Federal Reserve Bank of Dallas. The
telephone number is 2lU-651-6319*
Yours very truly,
P. E. Coldwell,
President

Enclosure

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

REGISTRATION AND OTHER REQUIREMENTS UNDER REGULATION G
Securities Credit by Persons other than Banks, Brokers or Dealers

Questions & Answers
T h es e q u e s t i o n s and a n s w e r s c o n c e r n th e r e g is t ra ti o n r eq u ir em en ts of Regulation G a n d ,
to so me e x t e n t , c o m p l i a n c e with t h e r eg ul a tio n a f t e r r e g is t ra ti o n . They ar e int end ed for t h e general
g u i d a n c e of le nders in the Eleventh Federal R e se r v e D i s t r i c t . B e ca us e they sum m ar iz e s o m e of the
re q u ir e m e n ts of the re g u la ti o n , th e r eg ul a tio n i t s e l f sh o ul d b e c o n s u l t e d when s p e c i f i c q u e s t i o n s a r i s e .
The reg u la tio n may be found in Titl e 12 of th e C od e of Federal Re g u la ti o n s, Part 207, a s
well a s in s e v e r a l c o m m e r c ia l ly -p u b l is h e d lo o s e - l e a f s e r v i c e s d e a l i n g with s e c u r i t i e s r e g u la tio n s.
C o p i e s of the re g u la ti o n , forms, and othe r information may be ob ta in ed from:
Regulations Department, Margin- International Group
Federal Reserve Bank o f D a lla s
Station K
D allas, Texas 75222
Telephone:
Question:

2 1 4 -6 5 1 -6 3 1 9

What is Regulation G?

One of t h e c r e d i t r e g u l a t i o n s i s s u e d by the Board of Gov erno rs of th e Federal Re serve System
under the S e c u r i t i e s Excha ng e A c t of 1934 and intende d to p r e v e n t e x c e s s i v e u s e of c r e d it for the p u r c h a s e
or ca rry ing of s e c u r i t i e s . T h e s e r e g u l a t i o n s a r e so m e ti m e s c a l l e d the margin reg ulations.
Answer:

Question:

Who is c o v e r e d by Re gulation G?

Any pe rs on , firm, or o th e r o r g a n iz a t io n , o th e r than a ban k ( co v e re d by Regulation U) and a broker
or d e a l e r in s e c u r i t i e s (cove red by Regulation T), t h a t e x t e n d s or a r r a n g e s for c r e d i t in th e ordinary c o u r s e
of b u s i n e s s in e x c e s s of s p e c i f i e d am o u n ts , when su c h c r e d it is s e c u r e d by c o l l a t e r a l th a t in cl ud es
margin s e c u r i t i e s .
Question: Name th e most common t y p e s of o r g a n i z a t i o n s th a t may be s u b j e c t to Regulation G.
Answer: I n su ra n ce c o m p a n i e s . C r ed i t u n io n s. F in a n c e c o m p a n i e s . P en si on an d re ti re m en t t r u s t s .
Mortgage c o m p a n ie s . In d iv id u a ls who r eg u la rl y ma ke loans including c o l l a t e r a l le nd ers and f a c to rs .
Production c r e d i t a s s o c i a t i o n s . I n s u r a n c e premium funding c o m p a n ie s . C o r p o r a ti o n s th a t ex t en d cr e d it
Answer:

in c o n n e c t io n with e x e c u t i v e and e m p lo y e e s t o c k p u r c h a s e p la n s .
What d o e s Regulation G requi re of a p e r so n , firm or ot h e r o r g a n iz a t io n (referred to h er e a f te r
as a "creditor")?

Question:

Answer: N oth ing until th e c r e d it o r co m es w ithin the r e g is t ra ti o n req u ir em en ts of th e reg ula tio n.

When is that?
When, in any c a l e n d a r q u a r te r, t h e c r e d it o r e i t h e r e x t e n d s , a r r a n g e s for, or h a s o u ts t a n d in g ,
the r e q u i s i t e am ount of c r e d i t s e c u r e d d i r e c t l y or in d i re ct l y , in w hol e or in part, by margin s e c u r i t i e s .
Question: What is the r e q u i s i t e amount?
Answer: For c r e d i t e x t e n d e d or ar r an ge d for du ri ng the q u a r te r, $50,0 00 . For c r e d i t o u ts t a n d in g a t any
Question:
Answer:

time during th e q u a r te r, $1 00, 000.
Question:
Answer:

What a r e margin s e c u r i t i e s ?
In g e n e r a l, they are:
(a) Equity s e c u r i t i e s th a t ar e r e g i s t e r e d ( " l i s t e d " ) on a n at io na l
secu rities exchange.
(b) OTC margin s t o c k s .

(c) S e c u r i t i e s of any ty pe w h ic h ar e c o n v e r t i b l e into e i t h e r of

Question:
Answer:

th e ab o v e (for e x a m pl e , w a r r a n ts or c o n v e r t i b l e s t o c k s and
debentures).
(d) S h ar es of most mutual f un ds.
What is OTC margin st o c k ?
Stock tr a d e d o ve r th e c o u n t e r (not " l i s t e d " on a n a t io n a l s e c u r i t i e s ex c h an g e ) which a p p e a r s

on the list of OTC margin s t o c k s p u b li s h e d p e r io d i c a ll y by th e Board of Go ver nor s of th e Federal R es erv e
System. Copies of th e lis t or information a s to th e c u r r e n t s t a t u s of p a r ti c u la r s t o c k s ca n be o b ta in ed
from th e R e gu la ti on s De p a rt me nt of th e Federal R e se r v e Bank of D a l l a s .
Question: When is a c r e d i t s e c u r e d d i r e c t l y or in di rec tl y by margin s e c u r i t i e s ?
Answer: A c r e d i t is s e c u r e d d ir e c tl y when margin s e c u r i t i e s ar e p le d ge d to s e c u r e it. E x i s t e n c e of
d ir e c t se cu r it y is not a l w a y s o b v io u s . For e x a m p le , in many c a s e s margin s e c u r i t i e s w h ic h a r e pl ed ged
to s e c u r e on e c r e d i t will a c t u a l l y s e c u r e la ter c r e d i t s by t h e s a m e lender under a s o - c a l l e d " a l l d e b t s "
c l a u s e in th e orig ina l p le d g e a g r e em e nt , even though th e la te r c r e d i t s may not be thou ght of a s s e c u r e d .
Ind irect s e c u r i t y is a more d if f i c u lt c o n c e p t ; under s e c t i o n 2 0 7 .2(i) of the r e g ul a tio n ,
it in c lu d es any ar r an g e m en t under w hic h the c u s t o m e r ' s right to s e l l , p le d g e, or o t h e r w i s e d i s p o s e of
margin s e c u r i t i e s is r e s t r i c t e d in any way for th e term of th e c r e d i t , or under which t h e e x e r c i s e of s uc h
rights may c a u s e a c c e l e r a t i o n of th e maturity of th e c r e d it .

One e xa m p le of in di rec t s e c u r it y is a

n e g a ti v e pl e d g e c o v e n a n t which is made s p e c i f i c a l l y a p p l i c a b l e to margin s e c u r i t i e s and un der whic h the
borrower a g r e e s not to pl e d g e e l s e w h e r e any margin s e c u r i t i e s he may own during the term of th e cr e d it .
Question:

What is required when a c r e d it o r f i r s t c o m e s u nd er th e r e g is t r a ti o n req u ir em en ts of Regulation

G?
Answer: In g e n e r a l , he must:

(1) Obtain an F. R. Form G-3 p ur po se s t a t e m e n t with e a c h c r e d i t ex t e n d e d or arr ang ed
whic h is s e c u r e d d ir e c tl y or in d ir e ct ly by margin s e c u r i t i e s . (This requ ir em ent
a p p l i e s to th e t r a n s a c t i o n w hic h br in g s t h e c r e d i t o r under the reg is t ra ti o n r e q u ir e ­

(2)

me nts and all s u b s e q u e n t e x t e n s i o n s of c r e d i t for w hic h margin s e c u r i t i e s
are d i r e c t or in d i re ct c o l l a t e r a l . )
In c o n n e c t io n with p u r p os e c r e d i t , obta in s u f f i c i e n t c o l l a t e r a l to comply with

th e margin re q u ir em en ts of Regulation G, an d comply with th e s u b s t i t u t i o n and
w ithd raw al req u ir em en ts when a p p l i c a b l e . ( T h e s e req u ir em en ts apply to the
t r a n s a c t i o n whic h brings the c r e d it o r u nde r th e r e g is t ra ti o n r e q u ir em en ts , if it
is pu rp os e c r e d it , and all s u b s e q u e n t e x t e n s i o n s of p u r p o se c r e d it which are
d i r e c t l y or in di re ct ly s e c u r e d by margin s e c u r i t i e s . )
(3) Within 30 d a y s follo win g t h e end of th e q u a r t e r , r e g i s t e r by filing F. R. Form
G-1 with th e R e g u la ti o n s D epa rt me nt of th e Fed era l Rese rv e Bank of D a l l a s .
(4) Within 30 d a y s a f t e r the c l o s e of ea c h S u c c e e d i n g qu ar te r, f ile a q u a r te rl y report
on F. R. Form G-4 with th e R e g ul a tio n s D e p a rt m e n t of the Federal R e se r v e Bank
of D a l l a s (forms ar e s u p p li e d to all r e g i s t r a n t s in a d v a n c e of the ti me for
filing).
(5) Except for home p u r c h a s e , c o n s t r u c t i o n , m a i n t e n a n c e , or improvement c r e d i t s ,
and c r e d i t s s e c u r e d by s h a r e a c c o u n t s , refrain from e x t e n d in g more than $5,000
of no n - pu rpo se c r e d i t to any c u s t o m e r if s e c u r e d by th e s a m e margin s e c u r i t i e s
What
Answer: C r ed it
of p u r c h a si n g or
Question: What
Question:

which s e c u r e an e x t e n s i o n of p u r p o se c r e d i t .
is p u r po se c r e di t?
ex t e n d e d , ar r a n g e d , or m a in ta in e d in t h e ordi nar y c o u r s e of b u s i n e s s for th e p u r po se
ca rry in g margin s e c u r i t i e s by a lend er s u b j e c t to th e r e g i s t r a t i o n r e qu ir em en ts .
ab o u t c r e d i t e x t e n d e d prior to com ing under the r e g is t r a ti o n re qu ir em en ts ?

Answer:

Pu rp os e c r e d i t e x t e n d e d a f te r February 1, 1968 and prior to the time a lender c o m e s under th e

r e g is t ra ti o n re q u ir e m e n ts b e c o m e s s u b j e c t to
loan up to a ful ly margi ned s t a t u s . T hus , no
Ho we ver , su ch c r e d i t s b ec o m e s u b j e c t t o th e
before a borrower can w ith d raw or s u b s t i t u t e

Regulation G, but t h e lender is not required to bring the
a d d i ti o n a l c o l l a t e r a l is required a t th e time of r e g is t r a ti o n .
w ith d ra w a l and s u b s t i t u t i o n req ui re m en ts of Regulation G;
c o l l a t e r a l , if h is c r e d i t is undermargined (th at is, d o e s not

hav e s u f f i c ie n t c o l l a t e r a l to m eet t h e margin re q u ir e m e n ts a t th e time he s e e k s to withd raw or s u b s t i t u t e ) ,
he g e n e r a ll y will be r eq ui r ed to s u p p l y a d d i t i o n a l c o l l a t e r a l or r e d u c e his c r e d i t b a l a n c e . If any of
t h e s e p r e - e x is ti n g p u r p o s e c r e d i t s is i n c r e a s e d a f t e r t h e lender c o m e s under th e r e g is t ra ti o n re q u ir e m e n ts ,
th e i n c r e a s e is s u b j e c t to t h e req u ir em en t of a p u r p o s e s t a t e m e n t a n d proper margin is required.
H owever, a r ene wa l or e x t e n s i o n of a p r e - e x i s t i n g c r e d i t , with no i n c r e a s e in p r in ci p al , r e q u ir e s no
pur po se s t a t e m e n t or i n c r e a s e in c o l l a t e r a l .
Are t h e r e an y ot h e r r u l e s r eg a rd in g c o m p l i a n c e with the r egu la tio n of which a r e g i s t r a n t
s ho u ld be aw are ?

Question:

Yes, t h e r e a r e a numbe r of a d d i ti o n a l r u le s an d e x c e p t i o n s not d e t a i l e d in t h i s r e l e a s e . For
e x a m p le , t h e re is a r eq u ir em en t t h a t p u r p o s e c r e d i t s e c u r e d by margin s e c u r i t i e s which a r e c o n v e r t i b l e
d e b t s e c u r i t i e s ( a s o p p o s e d to s t o c k s ) m u st be t r e a t e d s e p a r a t e l y from s t o c k - s e c u r e d p u r p o s e c r e d it

Answer:

for p u r p o s e s of t h e margin, w it h d r a w a l, a n d s u b s t i t u t i o n r e q u ir e m e n ts . A ls o , t h e re is a s i n g l e c r e d i t
rule, the e f f e c t of w h ic h, in g e n e r a l , p r e v e n t s a bor rower who h a s c r e d i t s u b j e c t to t h e margin
req u ir em en ts from t h e r e a f t e r o b ta in in g u n s e c u r e d p u r p o s e c r e d i t from th e sa m e lender. F in al ly , the re
are s e v e r a l e x c e p t i o n s and s p e c i a l r u le s for p a r t i c u l a r le n d er s and ty p e s of cr e d it .
What ar e t h e p e n a l t i e s for v i o l a t i n g Regu la tio n G?

Question:
Answer:

For a willful v io l a ti o n , upon c o n v i c t i o n , a fine of not more than $10,0 00, or imprisonment of

not more th a n f iv e y e a r s , or both. Feder al Re se r v e Re gu lation X im p o s e s on t h e c u s t o m e r a duty to s e e
tha t c r e d it e x t e n d e d to him c o m p l i e s with Regulation G an d im p o s e s th e sa m e p e n a l t i e s on the c u s t o m e r
for willful v i o l a t i o n s . Se ct io n 29 of t h e S e c u r i t i e s E xc ha n g e A c t p r o v id e s , among o th e r th i n g s , th a t
c o n t r a c t s ma de in v io l a ti o n of Regulation G, with c e r t a i n e x c e p t i o n s , ar e void.
Question: Can a r e g i s t r a n t e v e r d e - r e g i s t e r ?
Answer: Yes. If a r e g i s t r a n t durin g a period of s i x c a l e n d a r months h a s n e i t h e r ex te n d e d , arr an g e d
for, or had o u t s t a n d i n g an y c r e d i t s e c u r e d d i r e c t l y or i n d i re c tl y , in w hol e or in part, by margin
s e c u r i t i e s , a p p l i c a t i o n for d e - r e g i s t r a t i o n may be made on F. R. Form G-2 through th e Re gu la tio ns
D epa rt me nt of th e Federal R e se r v e Bank of D a l l a s .