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FEDERAL RESERVE BANK
OF NEW YORK
r Circular No. 1424 "I
LSeptember 28, 1934 J
REGULATION T, SERIES OF 1934
EXTENSION AND MAINTENANCE OF CREDIT
BY BROKERS, DEALERS, AND MEMBERS OF
SECURITIES EXCHANGES
To Members of National Securities Exchanges,
Brokers and Dealers in Securities, and Banking
Institutions, in the Second Federal Reserve District:
I am transmitting herewith a copy of Federal Reserve Board Regulation T, Series of 1934, entitled
"Extension and Maintenance of Credit by Brokers, Dealers, and Members of Securities Exchanges". Additional copies are available at this bank and will be furnished upon request.
Your attention is directed to the following statement on the page facing Section 1 of Regulation T :
In order that persons affected by Kegulation T of the Federal Keserve Board might have additional time after
October 1, 1934, within which to familiarize themselves with this regulation, the Securities and Exchange Commission has exempted, until midnight of October 14, 1934, from the operation of sections 7(a), 7(c), 7(d), 8(a)
and 12 (a) of the Securities Exchange Act of 1934 and all regulations promulgated thereunder, all securities,
•whether registered or not, except securities as to -which the Commission has refused to grant or has denied
registration.
Your further attention is directed to the following statement on the inside of the front cover page of
the Regulation T :
INQUIRIES REGARDING THESE REGULATIONS
It is suggested that all inquiries as to these regulations be addressed first to the Securities Exchange of
which the persons making the inquiries are members or the facilities of which are used for their transactions.
In the event the exchange officials desire information as to such questions, they should make inquiry of the
Federal Reserve Agent at the Federal Eeserve Bank of their district.
In turn the Federal Reserve Agent may make inquiry of the Board as to any question that needs the Board's
determination.
All answers made by the Board to such inquiries will be distributed to all exchanges through the Federal
Reserve Agents.
For your further information, there is quoted below a statement released by the Federal Reserve
Board to the press with Regulation T for publication in the morning papers, September 28, 1934:
MARGIN REQUIREMENTS
The Federal Reserve Board, acting in accordance with the requirements of the Securities Exchange Act of
1934, has prescribed the margins to be required by brokers and dealers from customers borrowing for the purpose
of purchasing or carrying securities.
The margin requirements which the Board has prescribed are those laid down as a standard in the Act, which
gives the Board authority to impose lower or higher margins in accordance with prevailing conditions. Under the
standard adopted a broker or dealer may lend to a customer on many securities as much as 75 per cent of their
current market value, while on other securities, in particular on those that have had a rapid rise in value since
July 1, 1933, the percentage that may be lent is smaller, but in no case less than 55 per cent.
Rules prescribed for margin requirements constitute a part of Regulation T issued by the Federal Reserve
Board, which also deals with other matters relating to the extension or maintenance of credit by brokers, dealers
and members of securities exchanges for the purpose of purchasing or carrying securities. Most of the rules in this
regulation are for the purpose of preventing the circumvention of the margin requirements, and no restrictions
are placed on loans for industrial, agricultural, or commercial purposes.
The regulation becomes effective October 1, 1934. In order, however, that persons affected might have additional time to familiarize themselves with its provisions, the Securities and Exchange Commission at the request of
the Federal Reserve Board has made broad use of its power to exempt securities from the pertinent sections of the
Securities Exchange Act. The exemption granted is for the period from October 1 to October 15.
Regulation T does not prescribe a specific margin that must be maintained after a loan has been granted,
but imposes restrictions on the operations which the customer may carry on in his account if his margin falls below
the standard prescribed for initial extension of credit.
Under the law the Board has authority to prescribe regulations, including margin requirements, applicable
to loans made by banks for the purpose of purchasing or carrying securities. This authority is additional to other
statutes for credit supervision. The Board is studying the present statute in connection with these other statutes
and in due time will issue the required regulation as to bank loans made to purchase or carry securities.
J. H. CASE,
Federal Reserve Agent.
FEDERAL RESERVE BOARD
EXTENSION AND MAINTENANCE OF CREDIT
BY BROKERS, DEALERS, AND MEMBERS
OF NATIONAL SECURITIES EXCHANGES
REGULATION T
This Regulation was approved September 27, 1934,
effective October 1, 1934
P R I N T E D
IN
N E W
Y O R K .
M . V .
INQUIRIES REGARDING THESE
REGULATIONS
It is suggested that all inquiries as to these regulations be addressed first to the securities exchange of
which the persons making the inquiries are members
or the facilities of which are used for their transactions.
In the event the exchange officials desire information as to such questions, they should make inquiry of
the Federal Reserve Agent at the Federal Reserve
Bank of their district.
In turn the Federal Reserve Agent may make
inquiry of the Board as to any question that needs
the Board's determination.
All answers made by the Board to such inquiries
will be distributed to all exchanges through the
Federal Reserve Agents.
TABLE OF CONTENTS
Pagr
See.
].
SCOPE AND EFFECTIVE DATE OF REGULATION
1
Sec
2.
DEFINITIONS
1
See.
3.
MARGIN REQUIREMENTS
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Sec.
4.
EXTENSION AND MAINTENANCE OF CREDIT
(a)
(b)
(c)
(d)
(e)
(f)
Sec.
5.
3
General rule
Extensions of credit to other members, brokers, and dealers
Extension of credit to distributors, syndicates, etc
Arbitrage accounts
Exempted securities
Adjusted debit balance
Current market value
Lowest market price
3
4
4
4
5
o
6
6
7
Statutory provision
General rule
Transactions in unrestricted accounts
Transactions in restricted accounts
Time when margin must be obtained
Time when payment or margin is deemed to be received. . . .
EXTENSION OR MAINTENANCE OF CREDIT WITHOUT COLLATERAL OR ON
COLLATERAL OTHER THAN EXEMPTED OR REGISTERED SECURITIES
7
7
7
7
8
8
9
(a) General rule
9
(b) Credit not for purchasing or carrying securities
9
(c) Additional collateral for maintenance of existing credits. . . 10
Sec.
6.
CASH TRANSACTIONS
10
Sec
7.
ACCOUNTS EXISTING ON OCTOBER 1, 1934
11
(a) Old accounts
(b) New accounts
(c) Consolidation of old accounts with new accounts
Sec.
8.
ADMINISTRATIVE ADJUSTMENTS AND DETAILS
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Sec.
Sec
9.
11
11
11
11
Borrowing and lending securities
Interest, commissions, etc
Declaration as to purpose of loan
Guaranteed accounts
Transfer of accounts
Credit for clearance of securities
Innocent mistakes
Transactions outside United States
11
12
12
12
12
13
13
13
REPORTS
13
10. • BORROWINGS BY MEMBERS, BROKERS, AND DEALERS
(a)
(b)
(c)
(d)
Sec. l l .
13
General rule
Borrowing from nonmember banks
Borrowing from other members, brokers, and dealers
Emergency loans
QUALIFICATION
OF
NONMEMBER
BANKS
TO
LEND
TO
13
14
14
14
MEMBERS,
BROKERS, AND DEALERS
14
(a) Form of agreement
14
(b) Banks in territories or insular possessions; branches of
foreign banks
15
(c) Method and evidence of
filing
15
(d) Termination of agreements
Ifi
(e) Forms available „
16
Sec. 12
ADDITIONAL REQUIREMENTS BY EXCHANGES AND CREDITORS
1»i
APPENDIX
17
i
In order that persons affected by Regulation T
of the Federal Reserve Board might have additional time after October 1, 1934, within which
to familiarize themselves with this regulation,
the Securities and Exchange Commission has
exempted, until midnight of October 14, 1934,
from the operation of sections 7(a), 7(c), 7(d),
8(a), and 12(a) of the Securities Exchange Act
of 1934 and all regulations promulgated thereunder, all securities, whether registered or not,
except securities as to which the Commission has
refused to grant or has denied registration.
REGULATION T, SERIES OF 1934
EXTENSION AND MAINTENANCE OF CREDIT BY BROKERS,
DEALERS, AND MEMBERS OF NATIONAL SECURITIES
EXCHANGES
SECTION 1 SCOPE AND EFFECTIVE DATE OF REGULATION
.
This regulation is issued pursuant to the requirements of sections
7 and 8(a) of the Securities Exchange Act of 1934 for the purpose of
preventing the excessive use of credit for the purchasing or carrying
of securities and applies to the extension and maintenance of credit
by members of national securities exchanges and by brokers and
dealers transacting a business in securities through the medium of
such members.
This regulation shall not be construed as applying to the extension
or maintenance of credit on registered securities for any purpose other
than the purpose of purchasing or carrying securities or of evading
or circumventing the provisions of this regulation.
This regulation shall become effective on October 1, 1934.
Such further regulations as the Board deems necessary or appropriate to carry out the provisions of section 7 and 8(a) of the
Securities Exchange Act of 1934 will be issued from time to time.
SECTION 2.
DEFINITIONS
For the purposes of this regulation—(a) The terms ''person ", "member", "broker", " dealer ", "buy'',
"purchase", "sale", "sell", "security", "equity security", and
" b a n k " shall have the meanings given them in section 3(a) of the
Securities Exchange Act of 1934, which is printed in the appendix to
this regulation.
(b) The term "creditor" means any member of a national securities
exchange or any broker or dealer who transacts a business in securities
through the medium of any such member.
(c) The term "account" means any account (whether a "combined
account" or a "special account" or any other account) representing
any financial relationship between any creditor and any customer or
any group of customers acting jointly.
(d) The term "combined account" means the combination of all
accounts (except "special accounts") between any creditor and any
customer, or any group of customers acting jointly, to or for whom
2
REGULATIONS OF THE FEDERAL RESERVE BOARD
EEG. T
such creditor is extending or maintaining any credit, directly or indirectly, on registered securities (other than exempted securities) for
the purpose of purchasing or carrying securities.
(e) The term "special account" means any account recorded
separately in conformity with sections 3(b). 3(c), 3(d), 5(b), f
>
or 7(a) of this regulation; and, when so recorded, such accounts shall
be excluded, for the purposes of this regulation, from all calculations
involving "combined accounts."
(f) The term "exempted security" or "exempted securities" shall
include securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States; such securities
issued or guaranteed by corporations in which the United States has a
direct or indirect interest as shall be designated for exemption by the
Secretary of the Treasury as necessary or appropriate in the public
interest or for the protection of investors; securities which are direct
obligations of or obligations guaranteed as to principal or interest by a
State or any political subdivision thereof or any agency or instrumentality of a State or any political subdivision thereof or any municipal corporate instrumentality of one or more States; and such other
securities as the Securities and Exchange Commission may, by such
rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or
upon specified terms and conditions or for stated periods, exempt from
the operation of any one or more provisions of section 7 and/or 8 (a) of
the Securities Exchange Act of 1934, which by their terms do not
apply to an "exempted security" or to "exempted securities."
(g) The term "registered security" means any security which is
registered on a national securities exchange, or which, in consequence
of its having unlisted trading privileges on a national securities exchange, must, under the provisions of section 12(f) of the Securities
Exchange Act of 1934, be considered a "security registered on a
national securities exchange."
(h) The term "maximum loan value" of a security means the
maximum amount of credit which, at any given time, may be extended
by any creditor on such security, in conformity with section 3. The
"maximum loan, value" of the securities in an account, at any given
time, is the sum of the maximum loan values at such time of the
individual securities in such account, including securities bought for
the account of the customer but not yet debited to his account, but
excluding securities sold for the account of the customer for which
payment has not yet been credited to his account and excluding contracts for the purchase or sale of unissued securities.
(i) The term "unrestricted account" means an account in which at
REG. T
REGULATIONS OF THE FEDERAL RESERVE BOARD
3
any given time the adjusted debit balance equals or is less than the
maximum loan value at such time of the securities in the account; and
any account which is an unrestricted account at the beginning of business on any given day may for the purposes of this regulation be
considered an unrestricted account throughout such daj^.
(j) The term "restricted account" means an account in Avhich, at
the beginning of business on any given day, the adjusted debit balance
exceeds the maximum loan value at such time of the securities in the
account: Provided, however. That, if during the course of a day, as a
result of the deposit of cash and/or securities or the sale or substitution of securities by or on behalf of the customer the maximum loan
value of the securities in the account becomes equal to or greater than
the adjusted debit balance, such account may be deemed an unrestricted account throughout such day.
(k) The term "initial extension of credit" means any new extension of credit in an account or any increase in the amount of credit
outstanding in an account.
(1) The term "net withdrawal" means any payment or delivery
from an account of money and/or registered and/or exempted securities having an aggregate current market value exceeding that of any
money and/or registered and/or exempted securities paid or delivered
into the account on the same day.
(m) The term "customer" means any person to or for whom, or
any group of persons to or for whose joint account, a creditor is
extending or maintaining any credit and includes any partner in a
firm to whom such firm is extending credit for the purpose of purchasing or carrying securities: Provided, however. That a partner
shall not be deemed to be a customer of his firm within the meaning of
this regulation with reference to his financial relations to the firm
as reflected in his capital and ordinary drawing accounts.
SECTION 3. MARGIN REQUIREMENTS
(a) General Rule.—No creditor shall make any initial extension of
credit to any customer on any registered security (other than an
exempted security) for the purpose of purchasing or carrying any
security, in an amount which causes the total credit extended on such
registered security to exceed the maximum loan value of such registered security. Except as specifically provided elsewhere in this
section, the maximum loan value of any registered security (other
than an exempted security) shall be whichever is the higher of:
(1) 55 percent of the current market value of the security; or
(2) 100 percent of the lowest market value of the security com-
4
REGULATIONS OF THE FEDERAL RESERVE BOARD
REG. T
puted at the lowest market price therefor during the period of
thirty-six calendar months immediately prior to the first day of the
current month, but not more than 75 percent of the current market
value: Provided, That until July 1, 1936, for the purpose of this
regulation, the lowest price at which a security has sold on or after
July 1, 1933, but prior to the first day of the current month, shall be
considered as the lowest market price of such securitj1" during the
preceding thirty-six calendar months; and Provided, That the lowest market price which could be used under the provisions of this
regulation during any calendar month may be used during the first
seven calendar days of the succeeding calendar month.
(b) Extensions of credit to other members, brokers, and dealers.
—In a special account recorded separately, any creditor may extend
credit on any registered security to any other member, broker, or
dealer in an amount not greater than the maximum loan value of such
security, which shall be (except in the case of an exempted security)
80 percent of the current market value of such security: Provided,
That (1) such other member, broker, or dealer is subject to the provisions of this regulation or has places of business only in foreign
countries, (2) such credit is extended or maintained solely for the
purpose of enabling such member, broker, or dealer to carry accounts
for his customers other than his partners, and (3) any credit extended
or maintained by such creditor to or for such other member, broker, or
dealer for the purpose of purchasing or carrying securities for his
account or for the account of his firm or any of his partners shall not
be included in such special account and shall be subject to the other
provisions of this section.
(c) Extension of credit to distributors, syndicates, etc.—In a special
account recorded separately, any creditor may extend credit on any
registered security in an amount not greater than the maximum loan
value thereof, which shall be (except in the case of an exempted
security) 80 percent of the current market value of such security:
(1) to any dealer, for the purpose of financing the distribution of an
issue of securities at Avholesale or retail; or (2) to any group, joint
account or syndicate, for the purpose of underwriting or distributing
an issue of securities.
(d) Arbitrage accounts.—If such transactions are recorded separately in a special account and are not used for the purpose of
evading or circumventing the provisions of this regulation, any bona
fide arbitrage transactions in securities and any credit extended or
maintained to or for a customer for the purpose of financing such
transactions shall be exempt from the other provisions of this regulation: Provided, That the customer shall maintain a margin equal to
KEG. T
REGULATIONS OF THE FEDERAL RESERVE BOARD
5
2 percent of any net debit balance in such account, unless the account
contains no securities except exempted securities.
(e) Exempted securities.—In an account which contains both
exempted securities and registered non-exempted securities, the maximum loan value of an exempted security shall be regarded as not more
than the current market value of such security: Provided, however,
That nothing in this regulation shall be construed as preventing any
exchange or any creditor from requiring margin on, or assigning lower
loan values to, exempted securities.
(f) Adjusted debit balance.—For the purpose of this regulation,
the adjusted debit balance of an account shall be calculated by taking
the sum of the following items:
(1) The net debit balance, if any, of the account;
(2) Any amount to be paid for securities (other than unissued
securities) bought for the account of the customer but not yet
debited to his account;
(3) The current market value of any securities sold short in the
account (other than unissued securities) plus the margin customarily required by the creditor on such short commitments;
(4) The amount of any margin customarily required by the
creditor on every future commitment in unissued securities, in
commodities, or in foreign exchange and/or in connection with the
creditor's endorsement or guaranty of any put, call or other option,
plus any unrealized loss on each such commitment and/or minus any
unrealized gain on each such commitment not exceeding the margin
thereon; and
(5) In the case of a guarantor's account, the aggregate of the
amounts required to make each account guaranteed by such guarantor an unrestricted account: Provided, That in the case of no
such guaranteed account shall the amount exceed that to which the
guaranty is limited;
and deducting therefrom the sum of the following items:
(6) The net credit balance, if any, of the account;
(7) Any amount to be received for securities (other than unissued securities) sold for the account of the customer but for which
payment has not yet been credited to his account; and
(8) Any amount needed but not yet received by the creditor to
provide any margin required by this regulation: Provided, That
(1) a demand for such margin shall have been made in, or confirmed
by, a letter or telegram which the creditor shall have sent to the
customer at his last known address and (2) the time within which
6
REGULATIONS OF THE FEDERAL RESERVE BOARD
EEG. T
the creditor is required by this regulation to obtain such margin has
not expired.
For the purposes of this regulation, the adjusted debit balance of
every account in which any credit is extended or maintained for the
purpose of purchasing or carrying securities shall be computed in
accordance with the above rules, regardless of whether it be a combined account or a special account. In case a customer has more
than one account (other thai* special accounts) with a creditor, his
adjusted debit balance and the maximum loan value of the securities
in his account shall be calculated, for the purposes of this regulation,
on the basis of his combined account, taking into consideration all
accounts between such customer and such creditor except special
accounts. In computing the adjusted debit balance of each special
account, there shall be taken into consideration only the items involved
in that particular account.
(g) Current market value.—For the purpose of ascertaining the
current market value of a security at the time of and in connection
with a purchase or sale of such security, the price at which such
security is purchased or sold (whether or not as part of a substitution
of securities or other transaction), shall be used in computing the
current market value of such security within the meaning of this
regulation.
For the purpose of ascertaining the current market value of any
security in an account, at any time other than the time of its purchase or sale, the creditor shall have the option of using as the price
of such security either the closing sale or the closing bid price for such
security on the preceding business day, as shown by any regularly
published reporting or quotation service used by such creditor (except
that such bid price shall not be deemed to be the current market value
of a security sold short). In the absence of any such closing sale price,
the creditor shall have the option of using either any such bid price on
such preceding business day (except that such bid price shall not be
deemed to be the current market price of a security sold short), or the
price at which the last sale was recorded, if such sale occurred during
the current or preceding calendar month, as shown by any regularly
published reporting or quotation service used by such creditor. In the
event that none of the prices above described is available, the creditor
may use any reasonable estimate of the market price of such security.
(h) Lowest market price.—The lowest market price of a registered
security during a specified time means the lowest price a't which such
security has sold during such time on the national securities exchanges
on which it is or has been registered (including such exchanges during
EEG. T
REGULATIONS OF THE FEDERAL RESERVE BOARD
7
that part of the specified time which preceded their respective registrations as national securities exchanges under the Securities Exchange
Act of 1934) : Provided, That, if such security is a stock upon which
there has been any stock dividend amounting to more than 10 percent
in any one calendar year, or any reduction or increase in the number
of shares by calling in the outstanding shares and issuing in substitution therefor a smaller or larger number of shares, any prices established before such dividend or change in number of shares shall be
adjusted therefor. A creditor using a figure published as such lowest
market price in any record published or aproved by any national
securities exchange may rely on such figure for the purposes of this
regulation.
SECTION 4. EXTENSION AND MAINTENANCE OF CREDIT
(a) Statutory provision.—Under the provisions of subsection (c)
of section 7 of the Securities Exchange Act of 1934, it is unlawful for
any member of a national securities exchange or any broker or dealer
Avho transacts a business in securities through the medium of any such
member, directly or indirectly to extend or maintain credit or arrange
for the extension or maintenance of credit to or for any customer on
any registered security (other than an exempted security) in contravention of the regulations of the Federal Reserve Board.
(b) General rule.—A creditor may permit credit to be maintained
in any account in accordance with the provisions of this section,
regardless of reductions in the customer's equity resulting from
changes in market prices and/or from charges to the account of the
customer permitted under section 8(b) of this regulation.
(c) Transactions in unrestricted accounts.—A creditor shall not
permit any customer to make in an unrestricted account any transaction or combination of transactions which would cause such account to
become a restricted account, unless he demands, in accordance with
subsection 4(e) of this regulation, additional margin in an amount
sufficient to make such account an unrestricted account.
(d) Transactions in restricted accounts.—A creditor shall not
permit a customer to make in a restricted account any transaction
which, in combination with any other transactions made on the same
day and together with demands for additional margin in connection
therewith, results in any increase of the excess of the adjusted debit
balance of the account over the maximum loan value of the securities
in the account, or results in any net withdrawal of cash and/or
securities: Provided, however, That a creditor may permit a customer
to make any transaction or combination of transactions which causes
the account to become an unrestricted account: and Provided, That
O
REGULATIONS OF THE FEDERAL RESERVE BOARD
EEG. T
any substitution of securities consisting of a sale of securities in the
account and the purchase of other securities, if completed within a
period of two successive business days, may be considered for the
purposes of this section as a single transaction occurring on the day
on which the purchase occurs.
(e) Time when margin must be obtained.—Whenever the creditor
is required to demand additional margin in order to comply with this
regulation, he shall demand the required amount of margin as
promptly as possible and shall obtain such margin as promptly as
possible in view of the established usages of the trade and the circumstances of the case and in all events before the expiration of three full
business days (exclusive of Saturdays, Sundays, and holidays) from
the date of the purchase or other transaction on account of which
such margin is required, unless, within such time such accovint is
brought into conformity with this regulation by some other
method: Provided, That, in exceptional cases, any regularly
constituted committee of a national securities exchange having jurisdiction over the business conduct of its members, of which exchange
the creditor is a member or through which his transactions are
effected, may grant a further extension of time, not exceeding ten
days, on application of the creditor, if such committee is satisfied that
the creditor is acting in good faith and that the circumstances warrant
such action: Provided, however, That, if the account be a restricted
account, (1) in the case of a withdrawal of cash, the necessary amount
of securities must be deposited on the same day; (2) in the case of a
withdrawal of securities, the necessary amount of cash must be deposited on the same day; and (3) in the case of a substitution of securities
(not involving a sale of securities in the account and the purchase of
other securities), the securities substituted must be deposited on the
same day that the securities for which they are substituted are
withdrawn.
(f) Time when payment or margin is deemed to be received.—
For the purposes of this regulation, any creditor who shall in good
faith accept any check or draft drawn on a bank which in the ordinary
course of business is payable on presentation or any order on a
savings account with passbook attached, shall be deemed to haw
received payment of the amount of such check, draft, or order within
the meaning of this regulation at the time such check, draft, or order
is received; and any creditor who shall in good faith ship securities
with sight draft attached shall be deemed to have received payment
of the amount of such sight draft at the time of the shipment of the
securities to which such sight draft is attached: Provided, That, if
such check, draft, order, or sight draft is not paid on the day of pres-
REG. T
REGULATIONS OF THE FEDERAL RESERVE BOARD
\f
entation, the creditor shall, before the expiration of three full business
days from the receipt of notice of such nonpayment, obtain actual
payment, cancel the sale, resell the securities for the account of the
customer, or obtain the deposit of additional securities having a loan
value sufficient to provide the margin needed.
Any member, broker, or dealer who shall receive payment of any
amount in any foreign currency capable of being converted without
restriction into United States currency, shall be deemed, for the
purposes of this regulation, to have received payment of an amount
equal to the value of the foreign currency so paid, computed at the
buying rate for cable transfers of such foreign currency on the preceding business day as determined and certified by the Federal
Reserve Bank of New York and published by the Secretary of the
Treasury pursuant to the provisions of Section 522 of Title 4 of the
Tariff Act of 1930. Any person who shall deposit with a creditor any
such foreign currency may, for the purpose of determining the
adjusted debit balance in an account of such person, be credited with
the value of such foreign currency computed as hereinabove
prescribed.
In the case of any special account which grows out of regular
correspondent relationships between a creditor and a customer who is
not located in the same city and who is a member, broker, or dealer,
securities which are in transit from such customer to the creditor for
the purpose of increasing the customer's margin may, for the purposes
of this regulation, be deemed to have been received by the creditor at
the time he receives and accepts in good faith a telegram or letter from
the customer stating that such securities have been shipped to the
creditor.
SECTION 5 EXTENSION OR MAINTENANCE OF CREDIT WITHOUT COLLATERAL OR
.
ON COLLATERAL OTHER THAN EXEMPTED OR REGISTERED SECURITIES
(a) General rule.—Under the provisions of subsection (c) of section 7 of the Securities Exchange Act of 1934, it is unlawful for any
member of a national securities exchange or any broker or dealer who
transacts a business in securities through the medium of any such
member, directly or indirectly to extend or maintain credit or arrange
for the extension or maintenance of credit to or for any customer
without collateral or on any collateral other than exempted and/or
registered securities except as expressly permitted by this regulation.
(b) Credit not for purchasing or carrying securities.—In a special
account recorded separately, a creditor may, notwithstanding any
other provision of this regulation, extend credit to any customer, without collateral or on any collateral other than non-exempted registered
10
REGULATIONS OF THE FEDERAL RESERVE BOARD
EEC T
securities, for any bona fide commercial, industrial, or other purpose
except the purpose of purchasing or carrying securities or of evading
or circumventing the provisions of this regulation.
(c) Additional collateral for maintenance of existing credits.—
As security for the maintenance of credits initially extended prior to
October 1, 1934, or extended in conformity with this regulation, for
the purpose of purchasing or carrying securities, a creditor may until
July 1, 1937, accept or retain as collateral, in addition to exempted
securities and registered securities, any collateral whatsoever:
Provided, That collateral other than exempted or registered securities
(1) shall not be the basis of any additional extension of credit, and
(2) shall be given no value in determining the maximum loan value
of the securities in the account.
SECTION 6.
CASH TRANSACTIONS
Notwithstanding any other provision of this regulation, a creditor
may, subject to the conditions specified in this section, make extensions
of credit for limited periods not exceeding seven days and effect other
transactions which are incidental to bona fide cash transactions.
A bona fide cash transaction is one in which a creditor sells a
security to a customer or purchases a security for a customer upon an
agreement made in good faith, and not to evade or circumvent the
provisions of this regulation, that the customer will promptly make
full cash payment for the security so sold or purchased.
Every creditor shall record separately in a special account all such
bona fide cash transactions in connection with which he extends credit
and shall record the full details of each such cash transaction, including
the name and address of the customer, a description of the security
involved, and the terms and date of sale and the date and manner of
payment.
No extension of credit which is incidental to any such bona fide cash
transaction shall constitute a violation of this regulation, (1) if payment for such securities is actually received, or the creditor is deemed
to have received payment for the purpose of this regulation, at or
within the time specified above, or (2) if the creditor cancels the sale
or resells the securities for the account of the customer within two days
after the time when payment should have been received under this subsection : Provided, however, That, in exceptional cases, any regularly
constituted committee of a national securities exchange having jurisdiction over the business conduct of its members, of which exchange
the creditor is a member or through which his transactions are effected,
may, on application of the creditor, grant a further extension of time
not exceeding thirty-five days or authorize the creditor to extend
i
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11
credit on such security subject to the provisions of this regulation,
if such committee is satisfied that the creditor is acting in good faith
and that the circumstances warrant such action.
SECTION 7. ACCOUNTS EXISTING ON OCTOBER 1, 1934
(a) Old accounts.—A creditor may designate any account maintained by him at the opening of business on October 1, 1934, as an old
account by making an appropriate entry in the record of such account
prior to November 15, 1934, and such creditor may carry such account
separately as a special account and maintain credit and permit transactions therein: Provided, That, in order to prevent the circumvention of this regulation, such transactions and the maintenance of such
credit shall be subject to the provisions of section 4 of this regulation:
Provided, That the creditor shall not at any time permit the customer
to make any transaction or combination of transactions in such old
account which would increase the adjusted debit balance of such
account above the amount existing at the time such transaction or
combination of transactions is instituted: Provided, however, That, if
such account is an unrestricted account on October 15, 1934, the
creditor, at any time prior to November 15, 1934, may permit the
customer to withdraw therefrom such amount of money and/or
securities as will not make such account a restricted account. Any
account not so designated as an old account prior to November 15,
1934, should be subject to all the provisions of this regulation.
(b) New accounts.—Notwithstanding any other provision of this
regulation, a creditor may at any time permit a customer having an
old account, recorded separately as above provided, to establish and
maintain one or more new accounts which new accounts shall be subject to all the applicable provisions of this regulation, except that they
shall not be affected by the status of, or transactions in, the old
account.
(c) Consolidation of old accounts with new accounts.—At any
time prior to July 1, 1937, a creditor may permit or require any customer to consolidate his old account with any of his newT accounts and
thereafter the consolidated account shall be considered a new account
writhin the meaning of this regulation: Provided, That all such
accounts shall be consolidated, liquidated, or otherwise disposed of on
or before July 1, 1937.
SECTION 8. ADMINISTRATIVE ADJUSTMENTS AND DETAILS
(a) Borrowing and lending securities.—Neither the bona fide
deposit of cash, in order to borrow securities for the purpose of making
delivery of such securities in the case of short sales, delayed deliveries,
12
REGULATIONS OF THE FEDERAL RESERVE BOARD
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and other similar transactions, nor the bona fide lending of securities
for such purposes shall be considered an extension or maintenance of
credit within the meaning of this regulation.
(b) Interest, commissions, etc.—Interest on credit maintained in
an account, commissions on transactions in an account, sale or transfer
taxes on transactions in an account, premiums on securities borrowed
in connection with short sales or to effect delivery, dividends, interest,
rights or other distributions due on borrowed securities, and any
service charges which the creditor may impose, may be debited to such
account in accordance with the usual practice and shall be taken into
consideration in calculating the net balance of such account; but the
debiting of any such item to an account shall not be considered a
violation of this regulation, whether or not such account is a restricted
account and whether or not the debiting of such item causes an
unrestricted account to become a restricted account.
(c) Declaration as to purpose of loan.—Every extension of credit
on a registered security (other than an exempted security) shall be
deemed for the purposes of this regulation to be for the purpose of
purchasing or carrying securities, unless the customer shall file with
the creditor a written declaration signed by the customer which shall
state the use to be made of such credit and which shall state specifically
that such credit is not for the purpose of purchasing or carrying
securities or of evading or circumventing the provisions of this regulation. In any case in Avhich a creditor is required to comply with the
provisions of this regulation if an extension of credit is for the purpose
of purchasing or carrying securities, he may rely upon a written
declaration of the customer such as that required above, unless he
knows the statement to be false or has information which would put a
prudent man upon inquiry and if investigated Avith reasonable diligence would lead to the discovery of the falsity of the statement.
(d) Guaranteed accounts.—Notwithstanding the definitions of the
terms "unrestricted account" and "restricted account," a creditor
may regard as an unrestricted account any account which is guaranteed in writing for an amount sufficient to make such account an
unrestricted account by a person who has an account with such
creditor containing securities of sufficient loan value to make such
guaranteed account an unrestricted account in addition to providing
the margin required by this regulation on the guarantor's account.
(e) Transfer of accounts.—In the event of the transfer of an
account from one creditor to another, such account may be treated
for the purposes of this regulation as if it had been maintained by the
transferee from the date of its origin.
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(f) Credit for clearance of securities.—The extension or maintenance of any credit which is maintained for only a fraction of a day
(that is, for only a part of the time between the beginning of business
and midnight on the same day) shall be disregarded for the purposes
of this regulation, if it is incidental to the clearance of transactions in
securities directly between members or through an agency organized
or employed by the members of a national securities exchange for the
purpose of effecting such clearances.
(g) Innocent mistakes.—If any failure to comply with this regulation results from an innocent mistake made in good faith in executing a transaction, recording, determining, or calculating any loan,
balance, market price, loan value, or other administrative adjustment
or detail, the creditor shall not be deemed guilty of a violation of this
regulation: Provided, That (1) the mistake is corrected promptly,
(2) any additional margin required is obtained within the time
allowed by this regulation from the date of the discovery of the
mistake.
(h) Transactions outside United States.—In view of the provisions
of section 30(b) of the Securities Exchange Act of 1934, nothing in
this regulation shall apply to any creditor in so far as he transacts a
business in securities without the jurisdiction of the United States,
unless he transacts such business in contravention of such rules and
regulations as the Securities and Exchange Commission may prescribe
as necessary or appropriate to prevent the evasion of the Securities
Exchange Act of 1934.
SECTION 9. REPORTS
Every member of a national securities exchange and every broker or
dealer who transacts a business in securities through the medium of
any such member, shall, in the manner and form to be prescribed by
the Federal Reserve Board, make such periodic, special, and/or other
reports as the Federal Reserve Board may require from time to time.
SECTION 10. BORROWINGS BY MEMBERS, BROKERS, AND DEALERS
(a) General rule.—Under the provisions of section 8 of the Securities Exchange Act of 1934 it is unlawful for any member of a national
securities exchange, or any broker or dealer who transacts a business
in securities through the medium of any such member, directly or
indirectly to borrow in the ordinary course of business as a broker or
dealer on any registered security (other than an exempted security)
except:
(1) From or through a member bank of the Federal Reserve
System; or
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REGULATIONS OF THE FEDERAL RESERVE BOARD
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(2) From any nonmember bank which shall have filed with the
Federal Reserve Board an agreement which is still in force and
which is in the form prescribed by this regulation; or
(3) To the extent to which, under the provisions of this regulation, the Federal Reserve Board permits loans between such members and/or brokers and/or dealers, or to meet emergency needs.
(b) Borrowing from nonmember banks.—Each nonmember bank
which has filed an agreement in the form prescribed by this regulation
will be given a certificate evidencing that fact. Interested persons may
obtain from the Federal Reserve Agent at any Federal Reserve Bank
the names of banks which have filed such agreements and information
as to whether in each case the agreement is still in force.
(c) Borrowing from other members, brokers, and dealers.—
A creditor may borrow from another creditor in the ordinary course of
business as a broker or dealer on any registered security to the extent
and subject to the terms upon which the latter may extend credit to
him in accordance with the provisions of this regulation and subject to
such rules and regulations as the Securities and Exchange Commission
may prescribe under the provisions of section 8(c) of the Securities
Exchange Act of 1934.
(d) Emergency loans.—Notwithstanding any other provision of
this regulation, any member of a national securities exchange, or any
group of such members, may, with the approval of any regularly constituted committee of a national securities exchange having jurisdiction
over the business conduct of such members, make loans to meet the
emergency needs of any other such member or of a broker or dealer
transacting business through the medium of any such member; and all
such loans, whether made prior or subsequent to the effective date of
this regulation, may be maintained, renewed, and/or extended until
the Federal Reserve Board shall determine that the emergency justifying such loan has ceased to exist: Provided, That any such committee
approving the making, renewal, or extension of any such loan, made
after the effective date of this regulation, shall, within 10 days, make
a written report of all facts relative thereto to the Federal Reserve
Agent of the district in which such exchange is located. Any member
of a national securities exchange and any broker or dealer who transacts a business in securities through the medium of any such member
may borrow in accordance with the provisions of this section for the
purpose of meeting his emergency needs.
SECTION 11. QUALIFICATION OP NONMEMBER BANKS TO LEND TO
MEMBERS, BROKERS, AND DEALERS
(a) Form of agreement.—In order to qualify, pursuant to the
provisions of subsection (a) of section 8 of the Securities Exchange
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15
Act of 1934, as a bank from which it is lawful for any member of a
national securities exchange or any broker or dealer who transacts a
business in securities through the medium of any such member, to
borrow, in the ordinary course of business as a broker or dealer, on
registered securities (other than exempted securities), a bank which
is not a member of the Federal Reserve System and which is not
included in the classes of banks referred to in subsection (b) of this
section, shall file, in the manner hereinafter prescribed, an agreement
on F . R. B. Form T-l, which form is hereby made a part of this
regulation. The execution of such agreement shall be authorized by
the adoption by the Board of Directors or other governing body of the
bank of a resolution in the form contained in F . R. B. Form T-l and
the agreement when filed shall be accompanied by a copy of such
resolution certified by the Secretary or other duly authorized officer
of the bank in the manner provided for in F. R. B. Form T-l.
(b) Banks in territories or insular possessions; branches of
foreign banks.—In order to qualify, pursuant to the provisions of
subsection (a) of section 8 of the Securities Exchange Act of 1934, a
bank which is not a member of the Federal Reserve System and which
has its principal place of business in a territory or insular possession
of the United States (including the Philippine Islands and the Canal
Zone) or which is not a member of the Federal Reserve System and
which has its principal place of business in a foreign country and has
a branch or agency in the United States, shall file in lieu of the agreement on F . R. B. Form T-l an agreement on F . R. B. Form T-2, which
form is hereby made a part of this regulation. Such agreement when
filed shall be accompanied by proof of the authorization of its execution in the manner provided on F. R. B. Form T-2.
(c) Method and evidence of filing.—Duplicate originals of F . R. B.
Form T-l, when properly executed, shall be delivered to the Federal
Reserve Agent at the Federal Reserve Bank of the district in which is
situated the qualifying bank's principal place of business and such
delivery shall constitute filing with the Federal Reserve Board. A
certificate evidencing such filing will thereupon be delivered to the
qualifying bank by the Federal Reserve Agent.
Duplicate originals of F . R. B. Form T-2, when properly executed,
shall be delivered to the Federal Reserve Agent at the Federal Reserve
Bank of New York or the Federal Reserve Agent at the Federal
Reserve Bank of San Francisco and delivery to either such Federal
Reserve Agent shall constitute filing with the Federal Reserve Board.
The Federal Reserve Agent to whom such delivery is made shall thereupon send a certificate evidencing such filing to the qualifying bank
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REGULATIONS OP THE FEDERAL RESERVE BOARD
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and to each branch or agency of the qualifying bank which is listed
in F. R. B. Form T-2 and shall at the same time send appropriate
notice of such filing to the Federal Reserve Agent at the Federal
Reserve Bank in each Federal Reserve District in which is situated
one or more of such branches or agencies.
(d) Termination of agreements.—Any agreement on P. R. B.
Form T-l or F. R. B. Form T-2 filed with the Federal Reserve Board
shall be subject to termination at any time by order of the Board,
after appropriate notice and opportunity for hearing, because of any
failure by the bank filing such agreement to comply with the provisions thereof or with the provisions of the Securities Exchange Act
of 1934, the Federal Reserve Act, as amended, or the Banking Act of
1933, which are applicable to member banks and which relate to the
use of credit to finance transactions in securities, or with such rules
and regulations as may be prescribed pursuant to such provisions of
law or for the purpose of preventing evasions thereof. For any willful
violation of such agreement, the offending bank will be subject to the
penalties prescribed by the Securities Exchange Act of 1934 for violations of rules and regulations prescribed thereunder.
(e) Forms available.—Copies of F. R. B. Form T-l and F. R. B.
Form T-2 may be obtained from the Federal Reserve Agents at the
Federal Reserve Banks.
SECTION 12.
ADDITIONAL REQUIREMENTS BY EXCHANGES AND CREDITORS
Nothing in this regulation shall be construed as preventing an
exchange from adopting and enforcing any rule or regulation requiring its members to secure or maintain higher margins or otherwise
restricting the amount of credit which may be extended by such
members.
Nothing in this regulation shall be construed as modifying the right
of any creditor to require additional security for the maintenance of
any credit or as restricting the right of any creditor to refuse to extend
credit or to sell any securities or property held as collateral for any
loan or credit extended by him.
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APPENDIX
There are printed below certain provisions of the Securities
Exchange Act of 1934 which are pertinent to the subject matter of
this regulation.
SEC. 3(a) When used in this title, unless the context otherwise
requires—
* * * *
(3) The term " m e m b e r " when used with respect to an exchange
means any person who is permitted either to effect transactions on
the exchange without the services of another person acting as broker,
or to make use of the facilities of an exchange for transactions
thereon without payment of a commission or fee or with the payment of a commission or fee which is less than that charged the
general public, and includes any firm transacting a business as
broker or dealer of which a member is a partner, and any partner
of any such firm.
(4) The term " b r o k e r " means any person engaged in the business of effecting transactions in securities for the account of others,
but does not include a bank.
(5) The term " d e a l e r " means any person engaged in the business of buying and selling securities for his own account, through
a broker or otherwise, but does not include a bank, or any person
insofar as he buys or sells securities for his own account, either
individually or in some fiduciary capacity, but not as a part of a
regular business.
(6) The term " b a n k " means (A) a banking institution organized
under the laws of the United States, (B) a member bank of the
Federal Reserve System, (C) any other banking institution, whether
incorporated or not, doing business under the laws of any State or
of the United States, a substantial portion of the business of which
consists of receiving deposits or exercising fiduciary powers similar
to those permitted to national banks under section 11 (k) of the
Federal Reserve Act, as amended, and which is supervised and examined by State or Federal authority having supervision over
banks, and which is not operated for the purpose of evading the
provisions of this title, and (D) a receiver, conservator, or other
liquidating agent of any institution or firm included in clauses
(A), (B), or (C) of this paragraph.
# * # *
(9) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a business trust,
or an unincorporated organization.
(10) The term "security" means any note, stock, treasury stock,
bond, debenture, certificate of interest or participation in any profitsharing agreement or in any oil, gas, or other mineral royalty or
lease, any collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit, for a security, or in general, any
instrument commonly known as a "security"; or any certificate of
interest or participation in, temporary or interim certificate for,
receipt for, or warrant or right to subscribe to or purchase, any of
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the foregoing; but shall not include currency or any note, draft, bill
of exchange, or banker's acceptance which has a maturity at the
time of issuance of not exceeding nine months, exclusive of days of
grace, or any renewal thereof the maturity of which is likewise
limited.
(11) The term ''equity security" means any stock or similar
security; or any security convertible, with or without consideration,
into such a security, or carrying any warrant or right to subscribe
to or purchase such a security; or any such warrant or right; or any
other security which the Commission shall deem to be of similar
nature and consider necessary or appropriate, by such rules and
regulations as it may prescribe in the public interest or for the protection of investors, to treat as an equity security.
* * * *
(13) The terms " b u y " and "purchase" each include any contract to buy, purchase, or otherwise acquire.
(14) The terms "sale" and "sell" each include any contract to
sell or otherwise dispose of.
* * * *
(b) The Commission and the Federal Reserve Board, as to matters within their respective jurisdictions, shall have power by rules
and regulations to define technical, trade, and accounting terms
used in this title insofar as such definitions are not inconsistent
with the provisions of this title.
* * # #
SEC. 6(b) No registration shall be granted or remain in force
unless the rules of the exchange include provision for the expulsion,
suspension, or disciplining of a member for conduct or proceeding
inconsistent with just and equitable principles of trade, and declare
that the willful violation of any provisions of this title or any rule
or regulation thereunder shall be considered conduct or proceeding
inconsistent with just and equitable principles of trade.
(c) Nothing in this title shall be construed to prevent any exchange from adopting and enforcing any rule not inconsistent with
this title and the rules and regulations thereunder and the applicable laws of the State in which it is located.
* # # *
SEC. 7. (a) For the purpose of preventing the excessive use of
credit for the purchase or carrying of securities, the Federal
Reserve Board shall, prior to the effective date of this section and
from time to time thereafter, prescribe rules and regulations with
respect to the amount of credit that may be initially extended and
subsequently maintained on any security (other than an exempted
security) registered on a national securities exchange. For the
initial extension of credit, such rules and regulations shall be based
upon the following standard: An amount not greater than whichever is the higher of—
(1) 55 per centum of the current market price of the security,
or
(2) 100 per centum of the lowest market price of the security
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during the preceding thirty-six calendar months, but not more
than 75 per centum of the current market price.
Such rules and regulations may make appropriate provision with
respect to the carrying of undermargined accounts for limited
periods and under specified conditions; the withdrawal of funds
or securities; the substitution or additional purchases of securities;
the transfer of accounts from one lender to another; special or
different margin requirements for delayed deliveries, short sales,
arbitrage transactions, and securities to which paragraph (2) of
this subsection does not apply; the bases and the methods to be
used in calculating loans, and margins and market prices; and
similar administrative adjustments and details. For the purposes
of paragraph (2) of this subsection, until July 1, 1936, the lowest
price at which a security has sold on or after July 1, 1933, shall
be considered as the lowest price at which such security has sold
during the preceding thirty-six calendar months.
(b) Notwithstanding the provisions of subsection (a) of this
section, the Federal Reserve Board, may, from time to time, with
respect to all or specified securities or transactions, or classes of
securities, or classes of transactions, by such rules and regulations
(1) prescribe such lower margin requirements for the initial extension or maintenance of credit as it deems necessary or appropriate
for the accommodation of commerce and industry, having due
regard to the general credit situation of the country, and (2)
prescribe such higher margin requirements for the initial extension
or maintenance of credit as it may deem necessary or appropriate
to prevent the excessive use of credit to finance transactions in
securities.
(c) It shall be unlawful for any member of a national securities
exchange or any broker or dealer who transacts a business in
securities through the medium of any such member, directly or
indirectly to extend or maintain credit or arrange for the extension
or maintenance of credit to or for any customer—
(1) On any security (other than an exempted security) registered on a national securities exchange, in contravention of the
rules and regulations which the Federal Reserve Board shall prescribe under subsections (a) and (b) of this section.
(2) Without collateral or on any collateral other than exempted
securities and/or securities registered upon a national securities
exchange, except in accordance wTith such rules and regulations as
the Federal Reserve Board may prescribe (A) to permit under
specified conditions and for a limited period any such member,
broker, or dealer to maintain a credit initially extended in conformity with the rules and regulations of the Federal Reserve
Board, and (B) to permit the extension or maintenance of credit
in cases where the extension or maintenance of credit is not for the
purpose of purchasing or carrying securities or of evading or circumventing the provisions of paragraph (1) of this subsection.
(d) It shall be unlawful for any person not subject to subsection
(c) to extend or maintain credit or to arrange for the extension or
maintenance of credit for the purpose of purchasing or carrying
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any security registered on a national securities exchange, in contravention of such rules and regulations as the Federal Reserve Board
shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of
the other provisions of this section. Such rules and regulations may
impose upon all loans made for the purpose of purchasing or carrying securities registered on national securities exchanges limitations
similar to those imposed upon members, brokers, or dealers by subsection (c) of this section and the rules and regulations thereunder.
This subsection and the rules and regulations thereunder shall not
apply (A) to a loan made by a i^erson not in the ordinary course
of his business, (B) to a loan on an exempted security, (C) to a
loan to a dealer to aid in the financing of the distribution of securities to customers not through the medium of a national securities
exchange, (D) to a loan by a bank on a security other than an
equity security, or (E) to such other loans as the Federal Reserve
Board shall, by such rules and regulations as it may deem necessary
or "appropriate in the public interest or for the protection of
investors, exempt, either unconditionally or upon specified terms
and conditions or for stated periods, from the operation of this
susbection and the rules' and regulations thereunder.
(e) The provisions of this section or the rules and regulations
thereunder shall not apply on or before July 1, 1937. to any loan
or extension of credit made prior to the enactment of this title or
to the maintenance, renewal, or extension of any such loan or credit,
except to the extent that the Federal Reserve Board may by rules
and regulations prescribed as necessary to prevent the circumvention of the provisions of this section or the rules and regulations
thereunder by means of withdrawals of funds or securities, substitutions of securities, or additional purchases or by any other
device.
* * * #
SEC. 8. It shall be unlawful for any member of a national
securities exchange, or any broker or dealer who transacts a business in securities through the medium of any such member, directly
or indirectly—
(a) To borrow in the ordinary course of business as a broker or
dealer on any security (other than an exempted security) registered
on a national securities exchange except (1) from or through a
member bank of the Federal Reserve System, (2) from any nonmember bank which shall have filed with the Federal Reserve Board
an agreement, which is still in force and which is in the form prescribed by the Board, undertaking to comply with all provisions of
this Act, the Federal Reserve Act, as amended, and the Banking Act
of 1933, which are applicable to member banks and which relate
to the use of credit to finance transactions in securities, and with
such rules and regulations as may be prescribed pursuant to such
provisions of law or for the purpose of preventing evasions thereof,
or (3) in accordance with such rules and regulations as the Federal
Reserve Board may prescribe to permit loans between such members and/or brokers and/or dealers, or to permit loans to meet
emergencv needs. Any such agreement filed with the Federal
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REGULATIONS OP THE FEDERAL RESERVE BOARD
21
Reserve Board shall be subject to termination at any time by order
of the Board, after appropriate notice and opportunity for hearing,
because of any failure by such bank to comply with the provisions
thereof or with such provisions of law or rules or regulations:
and, for any willful violation of such agreement, such bank shall
be subject to the penalties provided for violations of rules and regulations prescribed under this title. The provisions of sections 21
and 25 of this title shall apply in the case of any such proceeding
or order of the Federal Reserve Board in the same manner as such
provisions apply in the case of proceedings and orders of the
Commission.
(b) To permit in the ordinary course of business as a broker his
aggregate indebtedness to all other persons, including customers'
credit balances (but excluding indebtedness secured by exempted
securities), to exceed such percentage of the net capital (exclusive
of fixed assets and value of exchange membership) employed in the
business, but not exceeding in any case 2,000 per centum, as the
Commission may by rules and regulations prescribe as necessary or
appropriate in the public interest or for the protection of investors.
(c) In contravention of such rules and regulations as the Commission shall prescribe for the protection of investors to hypothecate
or arrange for the hypothecation of any securities carried for the
account of any customer under circumstances (1) that will permit
the commingling of his securities without his written consent with
the securities of any other customer, (2) that will permit such
securities to be commingled with the securities of any person other
than a bona fide customer, or (3) that will permit such securities to
be hypothecated, or subjected to any lien or claim of the pledgee,
for a sum in excess of the aggregate indebtedness of such customers
in respect of such securities.
(d) To lend or arrange for the lending of any securities carried
for the account of any customer without the written consent of such
customer.
• • •• •
SEC. 17(b) Any broker, dealer, or other person extending credit
who is subject to the rules and regulations prescribed by the Federal
Reserve Board pursuant to this title shall make such reports to the
Board as it may require as necessary or appropriate to enable it
to perform the functions conferred upon it by this title. If any
such broker, dealer, or other person shall fail to make any such
report or fail to furnish full information therein, or, if in the
judgment of the Board it is otherwise necessary, such broker, dealer,
or other person shall permit such inspections to be made by the
Board with respect to the business operations of such broker, dealer,
or other person as the Board may deem necessary to enable it to
obtain the required information.
SEC. 23 (a) The Commission and the Federal Reserve Board
shall each have power to make such rules and regulations as may
be necessary for the execution of the functions vested in them by
this title, and may for such purpose classify issuers, securities.
22
REGULATIONS OF THE FEDERAL RESERVE BOARD
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exchanges, and other persons or matters within their respective
jurisdictions.
# * * *
SEC. 29(a) Any condition, stipulation, or provision binding any
person to waive compliance with any provision of this title or of any
rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.
(b) Every contract made in violation of any provision of this
title or of any rule or regulation thereunder, and every contract
(including any contract for listing a security on an exchange)
heretofore or hereafter made the performance of which involves
the violation of, or the continuance of any relationship or practice
in violation of, any provision of this title or any rule or regulation
thereunder, shall be void (1) as regards the rights of any person
who, in violation of any such provision, rule, or regulation, shall
have made or engaged in the performance of any such contract,
and (2) as regards the rights of any person who, not being a party
to such contract, shall have acquired any right thereunder with
actual knowledge of the facts by reason of which the making or
performance of such contract was in violation of any such provision, rule or regulation.
(c) Nothing in this title shall be construed (1) to affect the
validity of any loan or extension of credit (or any extension or
renewal thereof) made or of any lien created prior or subsequent
to the enactment of this title, unless at the time of the making of
such loan or extension of credit (or extension or renewal thereof)
or the creating of such lien, the person making such loan or extension of credit (or extension or renewal thereof) or acquiring such
lien shall have actual knowledge of facts by reason of which the
making of such loan or extension of credit (or extension or renewal
thereof) or the acquisition of such lien is a violation of the provisions of this title or any rule or regulation thereunder, or (2) to
afford a defense to the collection of any debt or obligation or the
enforcement of any lien by any person who shall have acquired
such debt, obligation, or lien in good faith for value and without
actual knowledge of the violation of any provision of this title or
any rule or regulation thereunder affecting the legality of such
debt, obligation, or lien.
* * * *
SEC. 32. Any person who willfully violates any provision of this
title, or any rule or regulation thereunder the violation of which is
made unlawful or the observance of which is required under the
terms of this title, or any person who willfully and knowingly
makes, or causes to be made, any statement in any application,
report, or document required to be filed under this title or any rule
or regulation thereunder, which statement was false or misleading
with respect to any material fact, shall upon conviction be fined
not more than $10,000, or imprisoned not more than two years, or
both, except that when such person is an exchange, a fine not exceeding $500,000 may be imposed; but no person shall be subject to
imprisonment under this section for the violation of any rule or
regulation if he proves that he had no knowledge of such rule or
regulation.
FEDERAL RESERVE BOARD
EXTENSION AND MAINTENANCE OF CREDIT
BY BROKERS, DEALERS, AND MEMBERS OF
NATIONAL SECURITIES EXCHANGES
REGULATION T
This Regulation was approved September 27, 1934
effective October 1,1934
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON: 1934
INQUIRIES REGARDING THESE REGULATIONS
It is suggested that all inquiries as to these regulations be
addressed first to the securities exchange of which the persons making
the inquiries are members or the facilities of which are used for their
transactions.
In the event the exchange officials desire information as to such
questions, they should make inquiry of the Federal Keserve agent at
the Federal Reserve bank of their district.
In turn the Federal Reserve agent may make inquiry of the Board
as to any question that needs the Board's determination.
All answers made by the Board to such inquiries will be distributed
to all exchanges through the Federal Reserve agents.
CONTENTS
PageSEO.
1. SCOPE AND EFFECTIVE DATE OF REGULATION
SEO.
2. DEFINITIONS
SEC.
1
3. MARGIN REQUIREMENTS
1
(a) General rule
(6) Extensions of credit to other members, brokers, and
dealers
(c) Extension of credit to distributors, syndicates, etc
(d) Arbitrage accounts
(e) Exempted securities
(f) Adjusted debit balance
(g) Current market value
(h) Lowest market price
SEC.
-
3
4. EXTENSION AND MAINTENANCE OF CEEDIT
(a)
(6)
(c)
(d)
(e)
{f)
SEC.
3
7
Statutory provision
General rule
Transactions in unrestricted accounts
Transactions in restricted accounts
Time when margin must be obtained
Time when payment or margin is deemed to be received-
5. EXTENSION OR MAINTENANCE OF CREDIT WITHOUT COLLATERAL OR
ON COLLATERAL OTHER THAN EXEMPTED OR REGISTERED
SECURITIES
(a) General rule
(6) Credit not for purchasing or carrying securities
(c) Additional collateral for maintenance of existing
credits
SEC.
6. CASH TRANSACTIONS
SEC.
7. ACCOUNTS EXISTING ON OCTOBER 1, 1934
8. ADMINISTRATIVE
(a)
(6)
(c)
(d)
(e)
(f)
(g)
(h)
SEC.
9
9
9
9
11
11
11
11
ADJUSTMENTS AND DETAILS
11
Borrowing and lending securities
Interest, commissions, etc
Declaration as to purpose of loan
Guaranteed accounts
Transfer of accounts
Credit for clearance of securities
Innocent mistakes
Transactions outside United States
11
12
12
12
12
12
13
13
9. REPORTS
13
SEO. 10. BORROWINGS BY MEMBERS, BROKERS, AND DEALERS
(a)
(ft)
(c)
(d)
7
7
7
7
8
S
10
(a) Old accounts
(6) New accounts
(c) Consolidation of old accounts with new accounts
SEC.
4
4
4
5
5
6
6
13
General rule
Borrowing from nonmember banks
Borrowing from other members, brokers, and dealers
Emergency loans
SEC. 11. QUALIFICATION OF NONMEMBER BANKS TO LEND TO MEMBERS,
BROKERS, AND DEALERS
(a) Form of agreement
(6) Banks in territories or insular possessions; branches of
foreign banks
(c) Method and evidence of filing
(d) Termination of agreements
(e) Forms available
SEC. 12. ADDITIONAL REQUIREMENTS BY EXCHANGES AND CREDITORS
14
14
15
15
1(>
16
16
Appendix
13
14
14
14
17
in
In order that persons affected by Regulation T of the Federal
Reserve Board might have additional time after October 1,
1934, within which to familiarize themselves with this regulation, the Securities and Exchange Commission has exempted,
until midnight of October 14, 1934, from the operation of
sections 7 (a), 7 (c), 7 (d), 8 (a) and 12 (a) of the Securities
Exchange Act of 1934 and all regulations promulgated thereunder, all securities, whether registered or not, except securities as to which the Commission has refused to grant or has
denied registration.
REGULATION T, SERIES OF 1934
EXTENSION AND MAINTENANCE OF CREDIT BY BROKERS,
DEALERS, AND MEMBERS OF NATIONAL SECURITIES
EXCHANGES
SECTION 1. SCOPE AND EFFECTIVE DATE OF REGULATION
This regulation is issued pursuant to the requirements of sections
7 and 8 (a) of the Securities Exchange Act of 1934 for the purpose
of preventing the excessive use of credit for the purchasing or carrying of securities and applies to the extension and maintenance
of credit by members of national securities exchanges and by brokers
and dealers transacting a business in securities through the medium
of such members.
This regulation shall not be construed as applying to the extension or maintenance of credit on registered securities for any purpose other than the purpose of purchasing or carrying securities
or of evading or circumventing the provisions of this regulation.
This regulation shall become effective on October 1, 1934.
Such further regulations as the Board deems necessary or appropriate to carry out the provisions of sections 7 and 8 (a) of the
Securities Exchange Act of 1934 will be issued from time to time.
SECTION 2. DEFINITIONS
For the purposes of this regulation—
(a) The terms " person ", " member ", " broker ", " dealer ", " buy ",
" purchase ", " sale ", " sell ", " security ", " equity security ", and
" bank " shall have the meanings given them in section 3 (a) of the
Securities Exchange Act of 1934, which is printed in the appendix
to this regulation.
(&) The term "creditor" means any member of a national securities exchange or any broker or dealer who transacts a business in
securities through the medium of any such member.
(c) The term " account" means any account (whether a " combined account" or a " special account" or any other account) representing any financial relationship between any creditor and any
customer or any group of customers acting jointly.
(d) The term " combined account" means the combination of all
accounts (except " special accounts ") between any creditor and any
l
2
REGULATIONS OF THE FEDERAL RESERVE BOARD
REG. T
customer, or any group of customers acting jointly, to or for whom
such creditor is extending or maintaining any credit, directly or indirectly, on registered securities (other than exempted securities) for
the purpose of purchasing or carrying securities.
(e) The term " special account" means any account recorded separately in conformity with sections 3(5), 3(<?), 3(d), 5(5), 6, or 7(a)
of this regulation; and, when so recorded, such accounts shall be
excluded, for the purposes of this regulation, from all calculations
involving " combined accounts ".
(/) The term " exempted security" or " exempted securities"
shall include securities which are direct obligations of or obligations
guaranteed as to principal or interest by the United States; such
securities issued or guaranteed by corporations in which the United
States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury as necessary or appropriate
in the public interest or for the protection of investors; securities
which are direct obligations of or obligations guaranteed as to principal or interest by a State or any political subdivision thereof or
any agency or instrumentality of a State or any political subdivision
thereof or any municipal corporate instrumentality of one or more
States; and such other securities as the Securities and Exchange
Commission may, by such rules and regulations as it deems necessary
or appropriate in the public interest or for the protection of investors,
either unconditionally or upon specified terms and conditions or for
stated periods, exempt from the operation of any one or more provisions of section 7 and/or 8(a) of the Securities Exchange Act of
1934, which by their terms do not apply to an " exempted security "
or to " exempted securities ".
(g) The term " registered security " means any security which is
registered on a national securities exchange, or which, in consequence
of its having unlisted trading privileges on a national securities exchange, must, under the provisions of section 12 (f) of the Securities
Exchange Act of 1934, be considered a " security registered on a
national securities exchange ".
(A) The term "maximum loan value" of a security means the
maximum amount of credit which, at any given time, may be extended by any creditor on such security, in conformity with section
3. The " maximum loan value " of the securities in an account, at
any given time, is the sum of the maximum loan values at such time
of the individual securities in such account, including securities
bought for the account of the customer but not yet debited to his
account, but excluding securities sold for the account of the customer for which payment has not yet been credited to his account
and excluding contracts for the purchase or sale of unissued securities.
REG. T
REGULATIONS OF THE FEDERAL RESERVE BOARD
3
(i) The term " unrestricted account" means an account in which
at any given time the adjusted debit balance equals or is less than
the maximum loan value at such time of the securities in the account; and any account which is an unrestricted account at the
beginning of business on any given day may for the purposes of this
regulation be considered an unrestricted account throughout such day.
(j) The term " restricted account" means an account in which, at
the beginning of business on any given day, the adjusted debit balance exceeds the maximum loan value at such time of the securities
in the account: Provided, however, That, if during the course of
a day, as a result of the deposit of cash and/or securities or the sale
or substitution of securities by or on behalf of the customer the
maximum loan value of the securities in the account becomes equal
to or greater than the adjusted debit balance, such account may
be deemed an unrestricted account throughout such day.
(k) The term " initial extension of credit" means any new extension of credit in an account or any increase in the amount of credit
outstanding in an account.
(Z) The term " net withdrawal" means any payment or delivery
from an account of money and/or registered and/or exempted securities having an aggregate current market value exceeding that of
any money and/or registered and/or exempted securities paid or
delivered into the account on the same day.
(m) The term " customer " means any person to or for whom, or
any group of persons to or for whose joint account, a creditor is
extending or maintaining any credit and includes any partner in
a firm to whom such firm is extending credit for the purpose of
purchasing or carrying securities: Provided, however, That a partner shall not be deemed to be a customer of his firm within the
meaning of this regulation with reference to his financial relations
to the firm as reflected in his capital and ordinary drawing accounts.
SECTION 3. MARGIN REQUIREMENTS
(a) General rule.—No creditor shall make any initial extension of
credit to any customer on any registered security (other than an
exempted security) for the purpose of purchasing or carrying any
security, in an amount which causes the total credit extended on
such registered security to exceed the maximum loan value of such
registered security. Except as specifically provided elsewhere in
this section, the maximum loan value of any registered security
(other than an exempted security) shall be whichever is the higher of:
(1) 55 percent of the current market value of the security; or
(2) 100 percent of the lowest market value of the security
computed at the lowest market price therefor during the period
4
REGULATIONS OF THE FEDERAL RESERVE BOARD
REO. T
of 36 calendar months immediately prior to the first day of the
current month, but not more than 75 percent of the current
market value: Provided, That until July 1, 1936, for the purpose
of this regulation, the lowest price at which a security has sold
on or after July 1, 1933, but prior to the first day of the current
month, shall be considered as the lowest market price of such
security during the preceding 36 calendar months; and Provided,
That the lowest market price which could be used under the
provisions of this regulation during any calendar month may be
used during the first 7 calendar days of the succeeding calendar
month.
(b) Extensions of credit to other members, brokers, and dealers.—In
a special account recorded separately, any creditor may extend
credit on any registered security to any other member, broker, or
dealer in an amount not greater than the maximum loan value of
such security, which shall be (except in the case of an exempted
security) 80 percent of the current market value of such security:
Provided, That (1) such other member, broker, or dealer is subject to the provisions of this regulation or has places of business only
in foreign countries, (2) such credit is extended or maintained solely
for the purpose of enabling such member, broker, or dealer to carry
accounts for his customers other than his partners, and (3) any
credit extended or maintained by such creditor to or for such other
member, broker, or dealer for the purpose of purchasing or carrying securities for his own account or for the account of his firm or
any of his partners shall not be included in such special account and
shall be subject to the other provisions of this section.
(<?) Extension of credit to distributors, syndicates, etc.—In a special
account recorded separately, any creditor may extend credit on any
registered security in an amount not greater than the maximum loan
value thereof, which shall be (except in the case of an exempted
security) 80 percent of the current market value of such security:
(1) To any dealer, for the purpose of financing the distribution of an issue of securities at wholesale or retail; or
(2) To any group, joint account or syndicate, for the purpose of underwriting or distributing an issue of securities.
(d) Arbitrage accounts.—If such transactions are recorded separately in a special account and are not used for the purpose of
evading or circumventing the provisions of this regulation, any
bona fide arbitrage transactions in securities and any credit extended
or maintained to or for a customer for the purpose of financing such
transactions shall be exempt from the other provisions of this regulation: Provided, That the customer shall maintain a margin equal
RTO. T
REGULATIONS OF THE FEDERAL EESERVE BOARD
5
to 2 percent of any net debit balance in such account, unless the
account contains no securities except exempted securities.
(e) Exempted securities.—In an account which contains both exempted securities and registered nonexempted securities, the maximum loan value of an exempted security shall be regarded as not
more than the current market value of such security: Provided,
however, That nothing in this regulation shall be construed as preventing any exchange or any creditor from requiring margin on, or
assigning lower loan values to, exempted securities.
(/) Adjusted debit balance.—For the purpose of this regulation, the
adjusted debit balance of an account shall be calculated by taking
the sum of the following items:
(1) The net debit balance, if any, of the account;
(2) Any amount to be paid for securities (other than unissued securities) bought for the account of the customer but
not yet debited to his account;
(3) The current market value of any securities sold short in
the account (other than unissued securities) plus the margin
customarily required by the creditor on such short commitments;
(4) The amount of any margin customarily required by the
creditor on every future commitment in unissued securities,
in commodities, or in foreign exchange, and/or in connection
with the creditor's indorsement or guaranty of any put, call or
other option, plus any unrealized loss on each such commitment
and/or minus any unrealized gain on each such commitment not
exceeding the margin thereon; and
(5) In the case of a guarantor's account, the aggregate of the
amounts required to make each account guaranteed by such
guarantor an unrestricted account: Provided, That in the case of
no such guaranteed account shall the amount exceed that to which
the guaranty is limited;
and deducting therefrom the sum of the following items:
(6) The net credit balance, if any, of the account;
(7) Any amount to be received for securities (other than
unissued securities) sold for the account of the customer but
for which payment has not yet been credited to his account; and
(8) Any amount needed but not yet received by the creditor
to provide any margin required by this regulation: Provided,
That (a) a demand for such margin shall have been made in, or
confirmed by, a letter or telegram which the creditor shall have
sent to the customer at his last known address and (b) the time
within which the creditor is required by this regulation to obtain
such margin has not expired.
88098"—34
2
6
REGULATIONS OF THE FEDEEAL EESERVE BOARD
REG. T
For the purposes of this regulation, the adjusted debit balance
of every account in which any credit is extended or maintained
for the purpose of purchasing or carrying securities shall be computed in accordance with the above rules, regardless of whether
it be a combined account or a special account. In case a customer
has more than one account (other than special accounts) with a
creditor, his adjusted debit balance and the maximum loan value
of the securities in his account shall be calculated, for the purposes
of this regulation, on the basis of his combined account, taking into
consideration all accounts between such customer and such creditor
except special accounts. In computing the adjusted debit balance of
each special account, there shall be taken into consideration only
the items involved in that particular account.
{g) Current market value.—For the purpose of ascertaining the
current market value of a security at the time of and in connection
with a purchase or sale of such security, the price at which such
security is purchased or sold (whether or not as part of a substitution of securities or other transaction), shall be used in computing
the current market value of such security within the meaning of
this regulation.
For the purpose of ascertaining the current market value of any
security in an account, at any time other than the time of its purchase
or sale, the creditor shall have the option of using as the price of
such security either the closing sale or the closing bid price for such
security on the preceding business day, as shown by any regularly
published reporting or quotation service used by such creditor (except that such bid price shall not be deemed to be the current market
value of a security sold short). In the absence of any such closing
sale price, the creditor shall have the option of using either any such
bid price on such preceding business day (except that such bid price
shall not be deemed to be the current market price of a security sold
short), or the price at which the last sale was recorded, if such sale
occurred during the current or preceding calendar month, as shown
by any regularly published reporting or quotation service used by
such creditor. In the event that none of the prices above described
is available, the creditor may use any reasonable estimate of the
market price of such security.
(h) Lowest market price.—The lowest market price of a registered
security during a specified time means the lowest price at which such
security has sold during such time on the national securities exchanges on which it is or has been registered (including such exchanges during that part of the specified time which preceded their
respective registrations as national securities exchanges under the
Securities Exchange Act of 1934) : Provided, That, if such security
REG. T
REGULATIONS OF THE FEDERAL RESERVE BOARD
7
is a stock upon which there has been any stock dividend amounting
to more than 10 percent in any one calendar year, or any reduction
or increase in the number of shares by calling in the outstanding
shares and issuing in substitution therefor a smaller or larger number
of shares, any prices established before such dividend or change in
number of shares shall be adjusted therefor. A creditor using a
figure published as such lowest market price in any record published
or approved by any national securities exchange may rely on such
figure for the purposes of this regulation.
SECTION 4. EXTENSION AND MAINTENANCE OF CREDIT
(a) Statutory provision.—Under the provisions of subsection (c)
of section 7 of the Securities Exchange Act of 1934, it is unlawful for
any member of a national securities exchange or any broker or dealer
who transacts a business in securities through the medium of any
such member, directly or indirectly, to extend or maintain credit or
arrange for the extension or maintenance of credit to or for any
customer on any registered security (other than an exempted security) in contravention of the regulations of the Federal Reserve
Board.
(b) General rule.—A creditor may permit credit to be maintained
in any account in accordance with the provisions of this section,
regardless of reductions in the customer's equity resulting from
changes in market prices and/or from charges to the account of the
customer permitted under section 8 (b) of this regulation.
(c) Transactions in unrestricted accounts.—A creditor shall not permit any customer to make in an unrestricted account any transaction
or combination of transactions which would cause such account to
become a restricted account, unless he demands, in accordance with
section 4 (e) of this regulation, additional margin in an amount
sufficient to make such account an unrestricted account.
(d) Transactions in restricted accounts.—A creditor shall not permit
a customer to make in a restricted account any transaction which, in
combination with any other transactions made on the same day and
together with demands for additional margin in connection therewith, results in any increase of the excess of the adjusted debit
balance of the account over the maximum loan value of the securities in the account, or results in any net withdrawal of cash and/or
securities: Provided,, however, That a creditor may permit a customer to make any transaction or combination of transactions which
causes the account to become an unrestricted account: and Provided,
That any substitution of securities consisting of a sale of securities
in the account and the purchase of other securities, if completed
within a period of two successive business days, may be considered
8
REGULATIONS OF THE FEDERAL RESERVE BOARD
RBO. T
for the purposes of this section as a single transaction occurring
on the day on which the purchase occurs.
{e) Time when margin must be obtained.—Whenever the creditor is
required to demand additional margin in order to comply with this
regulation, he shall demand the required amount of margin as
promptly as possible and shall obtain such margin as promptly
as possible in view of the established usages of the trade and
the circumstances of the case and in all events before the expiration of three full business days (exclusive of Saturdays, Sundays and holidays) from the date of the purchase or other transaction on account of which such margin is required, unless, within
such time such account is brought into conformity with this regulation by some other method: Provided, That, in exceptional cases, any
regularly constituted committee of a national securities exchange
having jurisdiction over the business conduct of its members, of
which exchange the creditor is a member or through which his
transactions are effected, may grant a further extension of time, not
exceeding ten days, on application of the creditor, if such committee
is satisfied that the creditor is acting in good faith and that the
circumstances warrant such action: Provided, however, That, if the
account be a restricted account (1) in the case of a withdrawal of
cash, the necessary amount of securities must be deposited on the
same day; (2) in the case of a withdrawal of securities, the necessary amount of cash must be deposited on the same day; and (3)
in the case of a substitution of securities (not involving a sale of
securities in the account and the purchase of other securities),
the securities substituted must be deposited on the same day that
the securities for which they are substituted are withdrawn.
(/) Time when payment or margin is deemed to be received.—For the
purposes of this regulation, any creditor who shall in good faith
accept any check or draft drawn on a bank which in the ordinary
course of business is payable on presentation or any order on a
savings account with passbook attached, shall be deemed to have received payment of the amount of such check, draft, or order within
the meaning of this regulation at the time such check, draft, or order
is received; and any creditor who shall in good faith ship securities
with sight draft attached shall be deemed to have received payment
of the amount of such sight draft at the time of the shipment of the
securities to which such sight draft is attached: Provided, That, if
such check, draft, order, or sight draft is not paid on the day of
presentation, the creditor shall, before the expiration of three full
business days from the receipt of notice of such nonpayment, obtain
actual payment, cancel the sale, resell the securities for the account
of the customer, or obtain the deposit of additional securities having
a loan value sufficient to provide the margin needed.
RBG. T
BEGULATIONS OF T H E FEDEEAL EESERVE BOAED
9
Any member, broker, or dealer who shall receive payment of any
amount in any foreign currency capable of being converted without
restriction into United States currency, shall be deemed, for the purposes of this regulation, to have received payment of an amount equal
to the value of the foreign currency so paid, computed at the buying
rate for cable transfers of such foreign currency on the preceding
business day as determined and certified by the Federal Reserve
Bank of New York and published by the Secretary of the Treasury
pursuant to the provisions of section 522 of title 4 of the Tariff Act
of 1930. Any person who shall deposit with a creditor any such foreign currency may, for the purpose of determining the adjusted
debit balance in an account of such person, be credited with the value
of such foreign currency computed as hereinabove prescribed.
In the case of any special account which grows out of regular correspondent relationships between a creditor and a customer who is
not located in the same city and who is a member, broker, or dealer,
securities which are in transit from such customer to the creditor
for the purpose of increasing the customer's margin may, for the purposes of this regulation, be deemed to have been received by the
creditor at the time he receives and accepts in good faith a telegram
or letter from the customer stating that such securities have been
shipped to the creditor.
SECTION 5. EXTENSION OR MAINTENANCE OF CREDIT WITHOUT COLLATERAL,
OR ON COLLATERAL OTHER THAN EXEMPTED OR REGISTERED SECURITIES
(a) General rule.—Under the provisions of subsection (c) of section 7 of the Securities Exchange Act of 1934, it is unlawful for any
member of a national securities exchange or any broker or dealer
who transacts a business in securities through the medium of any
such member, directly or indirectly to extend or maintain credit or
arrange for the extension or maintenance of credit to or for any
customer without collateral or on any collateral other than exempted
and/or registered securities except as expressly permitted by this
regulation.
(b) Credit not for purchasing or carrying securities.—In a special
account recorded separately, a creditor may, notwithstanding any
other provision of this regulation, extend credit to any customer,
without collateral or on any collateral other than non-exempted
registered securities, for any bona fide commercial, industrial, or
other purpose except the purpose of purchasing or carrying securities
or of evading or circumventing the provisions of this regulation.
(c) Additional collateral for maintenance of existing credits.—As security for the maintenance of credits initially extended prior to
October 1, 1934, or extended in conformity with this regulation, for
10
REGULATIONS OF THE FEDERAL RESERVE BOARD
RKG. T
the purpose of purchasing or carrying securities, a creditor may
until July 1, 1937, accept or retain as collateral, in addition to
exempted securities and registered securities, any collateral whatsoever : Provided, That collateral other than exempted or registered
securities (1) shall not be the basis of any additional extension of
credit, and (2) shall be given no value in determining the maximum
loan value of the securities in the account.
SECTION 6. CASH TRANSACTIONS
Notwithstanding any other provision of this regulation, a creditor
may, subject to the conditions specified in this section, make extensions of credit for limited periods not exceeding seven days and
effect other transactions which are incidental to bona fide cash
transactions.
A bona fide cash transaction is one in which a creditor sells a
security to a customer or purchases a security for a customer upon
an agreement made in good faith, and not to evade or circumvent
the provisions of this regulation, that the customer will promply
make full cash payment for the security so sold or purchased.
Every creditor shall record separately in a special account all
such bona fide cash transactions in connection with which he extends
credit and shall record the full details of each such cash transaction, including the name and address of the customer, a description
of the security involved, the terms and date of sale and the date and
manner of payment.
No extension of credit which is incidental to any such bona fide
cash transaction shall constitute a violation of this regulation, (1)
if payment for such securities is actually received, or the creditor is
deemed to have received payment for the purpose of this regulation,
at or within the time specified above, or (2) if the creditor cancels
the sale or resells the securities for the account of the customer
within two days after the time when payment should have been
received under this subsection: Provided, however, That, in exceptional cases, any regularly constituted committee of a national securities exchange having jurisdiction over the business conduct of its
members, of which exchange the creditor is a member or through
which his transactions are effected, may, on application of the creditor, grant a further extension of time not exceeding 35 days or
authorize the creditor to extend credit on such security subject to the
provisions of this regulation, if such committee is satisfied that the
creditor is acting in good faith and that the circumstances warrant
such action.
REG. T
REGULATIONS OF THE FEDERAL RESERVE BOARD
11
SECTION 7. ACCOUNTS EXISTING ON OCTOBER 1, 1934
(a) Old accounts.—A creditor may designate any account maintained by him at the opening of business on October 1, 1934, as an
old account by making an appropriate entry in the record of such
account prior to November 15, 1934, and such creditor may carry
such account separately as a special account and maintain credit
and permit transactions therein: Provided, That, in order to prevent
the circumvention of this regulation, such transactions and the maintenance of such credit shall be subject to the provisions of section 4
of this regulation: Provided, That the creditor shall not at any
time permit the customer to make any transaction or combination
of transactions in such old account which would increase the adjusted debit balance of such account above the amount existing at
the time such transaction or combination of transactions is instituted: Provided, however, That, if such account is an unrestricted
account on October 15, 1934, the creditor, at any time prior to November 15, 1934, may permit the customer to withdraw therefrom
such amount of money and/or securities as will not make such
account a restricted account. Any account not so designated as an
old account prior to November 15, 1934, shall be subject to all the
provisions of this regulation.
(b) New accounts.—Notwithstanding any other provision of this
regulation, a creditor may at any time permit a customer having an
old account, recorded separately as above provided, to establish and
maintain one or more new accounts which new accounts shall be
subject to all the applicable provisions of this regulation, except
that they shall not be affected by the status of, or transactions in,
the old account.
(c) Consolidation of old accounts with new accounts.—At any time
prior to July 1, 1937, a creditor may permit or require any customer
to consolidate his old account with any of his new accounts and
thereafter the consolidated account shall be considered a new account within the meaning of this regulation: Provided, That all old
accounts shall be consolidated, liquidated, or otherwise disposed of
on or before July 1, 1937.
SECTION 8. ADMINISTRATIVE ADJUSTMENTS AND DETAILS
(a) Borrowing and lending securities.—Neither the bona-fidedeposit
of cash, in order to borrow securities for the purpose of making
delivery of such securities in the case of short sales, delayed deliveries, and other similar transactions, nor the bona fide lending of
securities for such purposes shall be considered an extension or maintenance of credit within the meaning of this regulation.
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REGULATIONS OF THE FEDERAL RESERVE BOARD
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(6) Interest, commissions, etc.—'Interest on credit maintained in an
account, commissions on transactions in an account, sale or transfer
taxes on transactions in an account, premiums on securities borrowed
in connection with short sales or to effect delivery, dividends, interest,
rights or other distributions due on borrowed securities, and any
service charges which the creditor may impose, may be debited to
such account in accordance with the usual practice and shall be
taken into consideration in calculating the net balance of such account ; but the debiting of any such item to an account shall not be
considered a violation of this regulation, whether or not such account is a restricted account and whether or not the debiting of such
item causes an unrestricted account to become a restricted account.
(c) Declaration as to purpose of loan.—Every extension of credit on
a registered security (other than an exempted security) shall be
deemed for the purposes of this regulation to be for the purpose of
purchasing or carrying securities, unless the customer shall file with
the creditor a written declaration signed by the customer which shall
state the use to be made of such credit and which shall state specifically that such credit is not for the purpose of purchasing or
carrying securities or of evading or circumventing the provisions of
this regulation. In any case in which a creditor is required to comply
with the provisions of this regulation if an extension of credit is for
the purpose of purchasing or carrying securities, he may rely upon a
written declaration of the customer such as that required above,
unless he knows the statement to be false or has information which
would put a prudent man upon inquiry and if investigated with reasonable diligence would lead to the discovery of the falsity of the
statement.
(d) Guaranteed accounts.—Notwithstanding the definitions of the
terms " unrestricted account" and " restricted account", a creditor
may regard as an unrestricted account any account which is guaranteed in writing for an amount sufficient to make such account an
unrestricted account by a person who has an account with such
creditor containing securities of sufficient loan value to make such
guaranteed account an unrestricted account in addition to providing
the margin required by this regulation on the guarantor's account.
(e) Transfer of accounts.—In the event of the transfer of an account from one creditor to another, such account may be treated for
the purposes of this regulation as if it had been maintained by tha
transferee from the date of its origin.
(/) Credit for clearance of securities.—The extension or maintenance
of any credit which is maintained for only a fraction of a day (that
is, for only part of the time between the beginning of business and
midnight on the same day) shall be disregarded for the purposes of
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REGULATIONS OF THE FEDERAL RESERVE BOARD
13
this regulation, if it is incidental to the clearance of transactions in
securities directly between members or through an agency organized
or employed by the members of a national securities exchange for
the purpose of effecting such clearances.
{g) Innocent mistakes.—If any failure to comply with this regulation results from an innocent mistake made in good faith in executing a transaction, recording, determining, or calculating any loany
balance, market price, loan value, or other administrative adjustment or detail, the creditor shall not be deemed guilty of a violation
of this regulation: Provided, That (1) the mistake is corrected
promptly, (2) any additional margin required is obtained within the
time allowed by this regulation from the date of the discovery of
the mistake.
(h) Transactions outside United States.—In view of the provisions
of section 30 (b) of the Securities Exchange Act of 1934, nothing
in this regulation shall apply to any creditor insofar as he transacts
a business in securities without the jurisdiction of the United States,
unless he transacts such business in contravention of such rules and
regulations as the Securities and Exchange Commission may prescribe as necessary or appropriate to prevent the evasion of the
Securities Exchange Act of 1934.
SECTION 9. REPORTS
Every member of a national securities exchange and every broker
or dealer who transacts a business in securities through the medium
of any such member, shall, in the manner and form to be prescribed
by the Federal Reserve Board, make such periodic, special, and/or
other reports as the Federal Reserve Board may require from time
to time.
SECTION 10. BORROWINGS BY MEMBERS, BROKERS, AND DEALERS
(a) General rule.—Under the provisions of section 8 of the Securities Exchange Act of 1934 it is unlawful for any member of
a national securities exchange, or any broker or dealer who transacts
a business in securities through the medium of any such member,
directly or indirectly to borrow in the ordinary course of business
as a broker or dealer on any registered security (other than an
exempted security) except:
(1) From or through a member bank of the Federal Reserve
System; or
(2) From any nonmember bank which shall have filed with
the Federal Reserve Board an agreement which is still in force
and which is in the form prescribed by this regulation; or
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REGULATIONS OF THE FEDERAL RESERVE BOARD
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(3) To the extent to which, under the provisions of this
regulation, the Federal Keserve Board permits loans between
such members and/or brokers and/or dealers, or to meet emergency needs.
(5) Borrowing from nonmember banks.—Each nonmember bank
which has filed an agreement in the form prescribed by this regulation will be given a certificate evidencing that fact. Interested
persons may obtain from the Federal Reserve agent at any Federal
Reserve bank the names of banks which have filed such agreements
and information as to whether in each case the agreement is still
in force.
(c) Borrowing from other members, brokers, and dealers.—A creditor
may borrow from another creditor in the ordinary course of business as a broker or dealer on any registered security to the extent
and subject to the terms upon which the latter may extend credit
to him in accordance with the provisions of this regulation and subject to such rules and regulations as the Securities and Exchange
Commission may prescribe under the provisions of section 8 (c) of
the Securities Exchange Act of 1934.
(d) Emergency loans.—Notwithstanding any other provision of
this regulation, any member of a national securities exchange, or
any group of such members, may, with the approval of any regularly constituted committee of a national securities exchange having
jurisdiction over the business conduct of such members, make loans
to meet the emergency needs of any other such member or of a
broker or dealer transacting business through the medium of any
such member; and all such loans, whether made prior or subsequent
to the effective date of this regulation, may be maintained, renewed,
and/or extended until the Federal Reserve Board shall determine
that the emergency justifying such loan has ceased to exist: Provided, That any such committee approving the making, renewal,
or extension of any such loan, made after the effective date of this
regulation, shall, within 10 days, make a written report of all facts
relative thereto to the Federal Reserve agent of the district in
which such exchange is located. Any member of a national securities exchange and any broker or dealer who transacts a business
in securities through the medium of any such member may borrow
in accordance with the provisions of this section for the purpose of
meeting his emergency needs.
SECTION 1 1 . QUALIFICATION OF NONMEMBER BANKS TO LEND TO
MEMBERS, BROKERS, AND DEALERS
(a) Form of agreement.—In order to qualify, pursuant to the provisions of subsection (a) of section 8 of the Securities Exchange
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REGULATIONS OF THE FEDERAL RESERVE BOARD
15
Act of. 1934, as a bank from which it is lawful for any member of
a national securities exchange or any broker or dealer who transacts
a business in securities through the medium of any such member,
to borrow, in the ordinary course of business as a broker or dealer,
on registered securities (other than exempted securities), a bank
which is not a member of the Federal Reserve System and which is
not included in the classes of banks referred to in subsection (b) of
this section, shall file, in the manner hereinafter prescribed, an
agreement on F.R.B. Form T-l, which form is hereby made a part
of this regulation. The execution of such agreement shall be authorized by the adoption by the board of directors or other governing body of the bank of a resolution in the form contained in
F.R.B. Form T-l and the agreement when filed shall be accompanied by a copy of such resolution certified by the secretary or other
duly authorized officer of the bank in the manner provided for in
F.R.B. Form T-l.
(b) Banks in territories or insular possessions; branches of foreign
banks.—In order to qualify, pursuant to the provisions of subsection
(a) of section 8 of the Securities Exchange Act of 1934, a bank which
is not a member of the Federal Reserve System and which has its
principal place of business in a Territory or insular possession of the
United States (including the Philippine Islands and the Canal
Zone) or which is not a member of the Federal Reserve System and
which has its principal place of business in a foreign country and
has a branch or agency in the United States, shall file in lieu of the
agreement on F.R.B. Form T-l an agreement on F.R.B. Form T-2,
which form is hereby made a part of this regulation. Such agreement when filed shall be accompanied by proof of the authorization
of its execution in the manner provided on F.R.B. Form T-2.
(c) Method and evidence of filing.—Duplicate originals of F.R.B.
Form T-l, when properly executed, shall be delivered to the Federal
Reserve agent at the Federal Reserve bank of the district in which
is situated the qualifying bank's principal place of business and such
delivery shall constitute filing with the Federal Reserve Board. A
certificate evidencing such filing will thereupon be delivered to the
qualifying bank by the Federal Reserve agent.
Duplicate originals of F.R.B. Form T-2, when properly executed,
shall be delivered to the Federal Reserve agent at the Federal Reserve
Bank of New York or the Federal Reserve agent at the Federal Reserve Bank of San Francisco and delivery to either such Federal
Reserve agent shall constitute filing with the Federal Reserve Board.
The Federal Reserve agent to whom such delivery is made shall
thereupon send a certificate evidencing such filing to the qualifying
bank and to each branch or agency of the qualifying bank which is
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REGULATIONS OF THE FEDERAL RESERVE BOARD
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listed in F.R.B. Form T-2 and shall at the same time send appropriate notice of such filing to the Federal Eeserve agent at the Federal
Reserve bank in each Federal Reserve district in which is situated
one or more of such branches or agencies.
(d) Termination of agreements.—Any agreement on F.R.B. Form
T-l or F.R.B, Form T-2 filed with the Federal Reserve Board shall
be subject to termination at any time by order of the Board, after
appropriate notice and opportunity for hearing, because of any
failure by the bank filing such agreement to comply with the provisions thereof or with the provisions of the Securities Exchange
Act of 1934, the Federal Reserve Act, as amended, or the Banking
Act of 1933, which are applicable to member banks and which relate
to the use of credit to finance transactions in securities, or with such
rules and regulations as may be prescribed pursuant to such provisions of law or for the purpose of preventing evasions thereof.
For any willful violation of such agreement, the offending bank will
be subject to the penalties prescribed by the Securities Exchange
Act of 1934 for violations of rules and regulations prescribed
thereunder.
(e) Forms available—Copies of F.R.B. Form T-l and F.R.B. T-2
may be obtained from the Federal Reserve agents at the Federal
Reserve banks.
SECTION 1 2 . ADDITIONAL REQUIREMENTS BY EXCHANGES AND CREDITORS
Nothing in this regulation shall be construed as preventing an
exchange from adopting and enforcing any rule or regulation requiring its members to secure or maintain higher margins or otherwise
restricting the amount of credit which may be extended by such
members.
Nothing in this regulation shall be construed as modifying the
right of any creditor to require additional security for the maintenance of any credit or as restricting the right of any creditor to
refuse to extend credit or to sell any securities or property held as
collateral for any loan or credit extended by him.
APPENDIX
There are printed below certain provisions of the Securities
Exchange Act of 1934 which are pertinent to the subject matter of
this regulation:
SEC. 3. (a) * * *
(3) The term " member " when used with respect to an exchange
means any person who is permitted either to effect transactions on
the exchange without the services of another person acting as broker,
or to make use of the facilities of an exchange for transactions
thereon without payment of a commission or fee or with the payment
of a commission or fee which is less than that charged the general
public, and includes any firm transacting a business as broker or
dealer of which a member is a partner, and any partner of any
such firm.
(4) The term " broker " means any person engaged in the business
of effecting transactions in securities for the account of others, but
does not include a bank.
(5) The term "dealer" means any person engaged in the business of buying and selling securities for his own account, through
a broker or otherwise, but does not include a bank, or any person
insofar as he buys or sells securities for his own account, either
individually or in some fiduciary capacity, but not as a part of a
regular business.
(6) The term " bank " means (A) a banking institution organized
under the laws of the United States, (B) a member bank of the
Federal Reserve System, (C) any other banking institution, whether
incorporated or not, doing business under the Taws of any State or
of the United States, a substantial portion of the business of which
consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under section 11 (k) of the
Federal Reserve Act, as amended, and which is supervised and examined by State or Federal authority having supervision over banks,
and which is not operated for the purpose of evading the provisions of this title, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B),
or (C) of this paragraph.
(9) The term " person " means an individual, a corporation, a
partnershipy an association, a joint-stock company, a business trust,
or an unincorporated organization.
(10) The term "security" means any note; stock, treasury stock,
bond, debenture, certificate of interest or participation in any profitsharing agreement or in any oil, gas, or other mineral royalty or
lease, any collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit, for a security, or in general, any
instrument commonly known as a " security "; or any certificate of
17
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BEGXJLATIONS OF THE FEDERAL EESERVE BOABD
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interest or participation in, temporary or interim certificate for,
receipt for, or warrant or right to subscribe to or purchase, any of
the foregoing; but shall not include currency or any note, draft, bill
of exchange, or banker's acceptance which has a maturity at the
time of issuance of not exceeding nine months, exclusive of days of
grace, or any renewal thereof the maturity of which is likewise
limited.
(11) The term " equity security " means any stock or similar security; or any security convertible, with or without consideration, into
such a security, or carrying any warrant or right to subscribe to or
purchase such a security; or any such warrant or right; or any other
security which the Commission shall deem to be of similar nature
and consider necessary or appropriate, by such rules and regulations
as it may prescribe in the public interest or for the protection of
investors, to treat as an equity security.
(13) The terms " buy " and " purchase " each include any contract
to buy, purchase, or otherwise acquire.
(14) The terms "sale" and "sell" each include any contract to
pell or otherwise dispose of.
SEC. 3. (b) The Commission and the Federal Reserve Board, as to
matters within their respective jurisdictions, shall have power by
rules and regulations to define technical, trade, and accounting terms
used in this title insofar as such definitions are not inconsistent with
the provisions of this title.
SEC. 6. (b) No registration shall be granted or remain in force
unless the rules of the exchange include provision for the expulsion,
suspension, or disciplining of a member for conduct or proceeding
inconsistent with just and equitable principles of trade, and declare
that the willful violation of any provisions of this title or any rule
or regulation thereunder shall be considered conduct or proceeding
inconsistent with just and equitable principles of trade.
(c) Nothing in this title shall be construed to prevent any exchange
from adopting and enforcing any rule not inconsistent with this title
and the rules and regulations thereunder and the applicable laws of
the State in which it is located.
SEC. 7. (a) For the purpose of preventing the excessive use of
credit for the purchase or carrying of securities, the Federal Reserve
Board shall, prior to the effective date of this section and from time
to time thereafter, prescribe rules and regulations with respect to the
amount of credit that may be initially extended and subsequently
maintained on any security (other than an exempted security) registered on a national securities exchange. For the initial extension of
credit, such rules and regulations shall be based upon the following
standard: An amount not greater than whichever is the higher of—
(1) 55 per centum of the current market price of the security,
or
(2) 100 per centum of the lowest market price of the security
during the preceding thirty-six calendar months, but not more
than 75 per centum of the current market price.
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REGULATIONS OF THE FEDEKAL EESERVE BOARD
19
Such rules and regulations may make appropriate provision with
respect to the carrying of undermargined accounts for limited
periods and under specified conditions; the withdrawal of funds or
securities; the substitution or additional purchases of securities; the
transfer of accounts from one lender to another; special or different
margin requirements for delayed deliveries, short sales, arbitrage
transactions, and securities to which paragraph (2) of this subsection does not apply; the bases and the methods to be used in
calculating loans, and margins and market prices; and similar
administrative adjustments and details. For the purposes of paragraph (2) of this subsection, until July 1, 1936, the lowest price
at which a security has sold on or after July 1, 1933, shall be considered as the lowest price at which such security has sold during
the preceding thirty-six calendar months.
(b) Notwithstanding the provisions of subsection (a) of this
section, the Federal Reserve Board, may, from time to time, with
respect to all or specified securities or transactions, or classes of
securities, or classes of transactions, by such rules and regulations
(1) prescribe such lower margin requirements for the initial extension or maintenance of credit as it deems necessary or appropriate
for the accommodation of commerce and industry, having due regard
to the general credit situation of the country, and (2) prescribe
such higher margin requirements for the initial extension or maintenance of credit as it may deem necessary or appropriate to prevent
the excessive use of credit to finance transactions in securities.
(c) It shall be unlawful for any member of a national securities
exchange or any broker or dealer who transacts a business in securities through the medium of any such member, directly or indirectly
to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer—
(1) On any security (other than an exempted security) registered
on a national securities exchange, in contravention of the rules and
regulations which the Federal Reserve Board shall prescribe under
subsections (a) and (b) of this section.
(2) Without collateral or on any collateral other than exempted
securities and/or securities registered upon a national securities
exchange, except in accordance with such rules and regulations as
the Federal Reserve Board may prescribe (A) to permit under
specified conditions and for a limited period any such member,
broker, or dealer to maintain a credit initially extended in conformity with the rules and regulations of the Federal Reserve Board,
and (B) to permit the extension or maintenance of credit in cases
where the extension or maintenance of credit is not for the purpose
of purchasing or carrying securities or of evading or circumventing
the provisions of paragraph (1) of this subsection.
(d) It shall be unlawful for any person not subject to subsection
(c) to extend or maintain credit or to arrange for the extension or
maintenance of credit for the purpose of purchasing or carrying
any security registered on a national securities exchange, in contravention of such rules and regulations as the Federal Reserve Board
shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of
the other provisions of this section. Such rules and regulations may
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REGULATIONS OF THE FEDEEAL RESERVE BOARD
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impose upon all loans made for the purpose of purchasing or carrying securities registered on national securities exchanges limitations
similar to those imposed upon members, brokers, or dealers by subsection (c) of this section and the rules and regulations thereunder.
This subsection and the rules and regulations thereunder shall not
apply (A) to a loan made by a person not in the ordinary course
of his business, (B) to a loan on an exempted security, (C) to a loan
to a dealer to aid in the financing of the distribution of securities
to customers not through the medium of a national securities
exchange, (D) to a loan by a bank on a security other than an equity
security, or (E) to such other loans as the Federal Reserve Board
shall, by such rules and regulations as it may deem necessary or
appropriate in the public interest or for the protection of investors,
exempt, either unconditionally or upon specified terms and conditions or for stated periods, from the operation of this subsection
and the rules and regulations thereunder.
(e) The provisions of this section or the rules and regulations
thereunder shall not apply on or before July 1, 1937, to any loan or
extension of credit made prior to the enactment of this title or to
the maintenance, renewal, or extension of any such loan or credit,
except to the extent that the Federal Reserve Board may by rules
and regulations prescribe as necessary to prevent the circumvention
of the provisions of this section or the rules and regulations thereunder by means of withdrawals of funds or securities, substitutions
of securities, or additional purchases or by any other device.
SEC. 8. It shall be unlawful for any member of a national securities exchange, or any broker or dealer who transacts a business in
securities through the medium of any such member, directly or
indirectly—
(a) To borrow in the ordinary course of business as a broker or
dealer on any security (other than an exempted security) registered
on a national securities exchange except (1) from or through a
member bank of the Federal Reserve System, (2) from any nonmember bank which shall have filed with the Federal Reserve Board
an agreement, which is still in force and which is in the form prescribed by the Board, undertaking to comply with all provisions of
this Act, the Federal Reserve Act, as amended, and the Banking Act
of 1933, which are applicable to member banks and which relate
to the use of credit to finance transactions in securities, and with
such rules and regulations as may be prescribed pursuant to such
provisions of law or for the purpose of preventing evasions thereof,
or (3) in accordance with such rules and regulations as the Federal
Reserve Board may prescribe to permit loans between such members and/or brokers and/or dealers, or to permit loans to meet
emergency needs. Any such agreement filed with the Federal
Reserve Board shall be subject to termination at any time by order
of the Board, after appropriate notice and opportunity for hearing,
because of any failure by such bank to comply with the provisions
thereof or with such provisions of law or rules or regulations;
and, for any willful violation of such agreement, such bank shall
be subject to the penalties provided for violations of rules and regulations prescribed under this title. The provisions of sections 21
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REGULATIONS OF THE FEDERAL RESERVE BOARD
21
and 25 of this title shall apply in the case of any such proceeding
or order of the Federal Keserve Board in the same manner as such
provisions apply in the case of proceedings and orders of the
Commission.
(b) To permit in the ordinary course of business as a broker his
aggregate indebtedness to all other persons, including customers'
credit balances (but excluding indebtedness secured by exempted
securities), to exceed such percentage of the net capital (exclusive
of fixed assets and value of exchange membership) employed in the
business, but not exceeding in any case 2,000 per centum, as the
Commission may by rules and regulations prescribe as necessary or
appropriate in the public interest or for the protection of investors.
(c) In contravention of such rules and regulations as the Commission shall prescribe for the protection of investors to hypothecate
or arrange for the hypothecation of any securities carried for the
account of any customer under circumstances (1) that will permit
the commingling of his securities without his written consent with
the securities of any other customer, (2) that will permit such
securities to be commingled with the securities of any person other
than a bona fide customer, or (3) that will permit such securities to
be hypothecated, or subjected to any lien or claim of the pledgee,
for a sum in excess of the aggregate indebtedness of such customers
in respect of such securities.
(d) To lend or arrange for the lending of any securities carried
for the account of any customer without the written consent of such
customer.
SEC. IT. (b) Any broker, dealer, or other person extending credit
who is subject to tne rules and regulations prescribed by the Federal
Keserve Board pursuant to this title shall make such reports to the
Board as it may require as necessary or appropriate to enable it
to perform the functions conferred upon it by this title. If any
such broker, dealer, or other person shall fail to make any such
report or fail to furnish full information therein, or, if in the
judgment of the Board it is otherwise necessary, such broker, dealer,
or other person shall permit such inspections to be made by the
Board with respect to the business operations of such broker, dealer,
or other person as the Board may deem necessary to enable it to
obtain the required information.
SEC. 23. (a) The Commission and the Federal Keserve Board
shall each have power to make such rules and regulations as may
be necessary for the execution of the functions vested in them by
this title, and may for such purpose classify issuers, securities,
exchanges, and other persons or matters within their respective
jurisdictions.
SEC. 29. (a) Any condition, stipulation, or provision binding any
person to waive compliance with any provision of this title or of any
rule or regulation thereunder, or of any rule of an exchange required
thereby shall be void.
(b) Every contract made in violation of any provision of this
title or of any rule or regulation thereunder, and every contract
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REGULATIONS OF THE FEDERAL RESERVE BOARD
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(including any contract for listing a security on an exchange)
heretofore or hereafter made the performance of which involves
the violation of, or the continuance of any relationship or practice
in violation of, any provision of this title or any rule or regulation
thereunder, shall be void (1) as regards the rights of any person
who, in violation of any such provision, rule, or regulation, shall
have made or engaged in the performance of any such contract,
and (2) as regards the rights of any person who, not being a party
to such contract, shall have acquired any right thereunder with
actual knowledge of the facts by reason of which the making or
performance of such contract was in violation of any such provision, rule or regulation.
(c) Nothing in this title shall be construed (1) to affect the validity of any loan or extension of credit (or any extension or
renewal thereof) made or of any lien created prior or subsequent
to the enactment of this title, unless at the time of the making of
such loan or extension of credit (or extension or renewal thereof)
or the creating of such lien, the person making such loan or extension
of credit (or extension or renewal thereof) or acquiring such lien
shall have actual knowledge of facts by reason of which the making
of such loan or extension of credit (or extension or renewal thereof)
or the acquisition of such lien is a violation of the provisions of this
title or any rule or regulation thereunder, or (2) to afford a defense
to the collection of any debt or obligation or the enforcement of any
lien by any person wTho shall have acquired such debt, obligation, or
lien in good faith for value and without actual knowledge of the
violation of any provision of this title or any rule or regulation
thereunder affecting the legality of such debt, obligation, or lien.
SEC. 32. Any person who willfully violates any provision of this
title, or any rule or regulation thereunder the violation of which is
made unlawful or the observance of which is required under the
terms of this title, or any person who willfully and knowingly
makes, or causes to be made, any statement in any application, report,
or document required to be filed under this title or any rule or
regulation thereunder, which statement was false or misleading with
respect to any material fact, shall upon conviction be fined not
more than $10,000, or imprisoned not more than two years, or both,
except that when such person is an exchange, a fine not exceeding
$500,000 may be imposed; but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation.
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