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F E D E R A L R E S E R V E BA N K
O F N EW YORK
r Circular N o. 4 7 4
June 3, 1959
L
REG U LATIO N S T AN D U
— Revised Regulations and Supplements, Effective June 15, 1959
— Interpretations b y Board o f Governors
To All Banks, Members o f National Securities Exchanges, and
Others Interested, in the Second Federal Reserve D istrict:
Enclosed are copies o f R egulations T and U o f the B oard o f G overnors
o f the F ederal R eserve System and the Supplem ents thereto, all revised effec
tive June 15, 1959. The revised regulations and supplements include the
amendments effective June 15, 1959, transm itted to you with our Circular No.
4740, dated M ay 13, 1959.
The B oa rd o f G overnors has issued an interpretation o f certain provisions
o f its amended Regulation T and an interpretation o f certain provisions o f its
amended Regulation U. C opies o f the interpretations, printed in a convenient
size fo r keeping w ith you r copies o f the regulations, are also enclosed.
A dditional copies o f the enclosures w ill be furnished upon request.
A
lfred
H
ayes,
P resident.
6 ~
1
J
BOARD OF GOVERNORS
o f the
FEDERAL RESERVE SYSTEM
LOANS BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING REGISTERED
STOCKS
REGULATION U
(1 2
As A m en d ed
CFR
221)
to June
15, 1959
INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed to
the Federal Reserve Bank of the district in which the inquiry
arises.
EXPLANATO RY FOREW ORD
(N o t a p a rt o f
th e r e g u la t io n )
This regulation is issued pursuant to the provisions o f section 7 of
the Securities Exchange A ct o f 1934.
This regulation does not prevent a bank from taking for any loan
collateral in addition to that required by the regulation. Except as
provided in § 221.3 (r) with respect to convertible securities, it does not
require a bank to reduce any loan, to obtain collateral for any out
standing loan, or to call any outstanding loan because of insufficient
collateral.
N o t e . —The reporting and record-keeping requirements contained herein have
been approved by the Bureau of the Budget in accordance with the Federal
Reports Act of 1942.
REGULATION U
(12 C F R 221)
A s A m ended to June 15, 1959
LOANS BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING REGISTERED STOCKS*
S E C T IO N 221.1— G E N E R A L R U L E
(а) N o bank shall make any loan secured directly or indirectly by
any stock for the purpose o f purchasing or carrying any stock registered
on a national securities exchange (and no bank shall make any loan
described in § 221.3(9) regardless o f whether or not such loan is secured
by any stock) in an amount exceeding the maximum loan value o f the
collateral, as prescribed from time to time for stocks in §221.4 (the
Supplement to Regulation U ) and as determined b y the bank in good
faith for any collateral other than stocks.
(б ) F or the purpose o f this part, the entire indebtedness o f any
borrower to any bank incurred at any time for the purpose o f purchas
ing or carrying stocks registered on a national securities exchange shall
be considered a single loa n ; and all the collateral securing such indebt
edness shall be considered in determining whether or not the loan
complies with this part.
(c)
W hile a bank maintains any such loan, whenever made, the bank
shall not at any time permit any withdrawal or substitution o f col
lateral unless either (1) the loan would not exceed the maximum loan
value o f the collateral after such withdrawal or substitution, or (2)
the loan is reduced by at least the amount b y which the maximum loan
value of any collateral deposited is less than the “ retention require
ment” o f any collateral withdrawn. The “ retention requirement” of
nonstock collateral is the same as its maximum loan value, and the
“ retention requirement” o f stock collateral is prescribed from time to
time in §221.4 (the Supplement to Regulation U ). I f the maximum
loan value of the collateral securing the loan has become less than the
amount o f the loan, the amount o f the loan m ay nevertheless be in
creased if there is provided additional collateral having maximum
loan value at least equal to the amount o f the increase.
S E C T IO N 2212 — E X C E P T I O N S T O G E N E R A L R U L E
Notwithstanding the provisions o f § 221.1, a bank m ay make and
m ay maintain any loan for tjie purpose specified in §221.1, without
• This text corresp on d s t o th e C o d e o f Federal R e g u la tion s, T itle 12. C h a p ter I I . P art 221;
cited as 12 C F R 221.
1
REGULATION U
2
S e c s . 2 2 1 .2 — 2 2 1 .3
regard to the limitations prescribed therein, if the loan com es within
any o f the following descriptions:
(а) A ny loan to a bank or to a foreign banking institution;
(б ) Any loan made prior to July 16, 1945, to any person whose
total indebtedness to the bank at the date o f and including such loan
does not exceed $1,000;
(c) Any loan to a dealer, or to two or more dealers, to aid in the
financing o f the distribution o f securities to customers not through
the medium o f a national securities exchange;
(d ) A ny loan to a broker or dealer that is made in exceptional
circumstances in good faith to meet his emergency needs;
(e) Any loan to a broker or dealer secured b y any securities which,
according to written notice received by the bank from the broker or
dealer pursuant to a rule of the Securities and Exchange Commission
concerning the hypothecation o f customers’ securities (Rule X -8 C -1
or Rule X -1 5 C 2 -1 ), are securities carried for the account o f one or
more customers, provided the bank accepts in good faith from the
broker or dealer a signed statement to the effect that he is subject to
the provisions o f Part 220 o f this chapter (Regulation T ) (or that
he does not extend or maintain credit to or for customers except in
accordance therewith as if he were subject th ereto);
(/) Any temporary advance to finance the purchase or sale of
securities for prompt delivery which is to be repaid in the ordinary
course o f business upon com pletion o f the transaction;
{g) A ny loan against securities in transit, or surrendered for
transfer, which is payable in the ordinary course o f business upon
arrival o f the securities or upon completion o f the transfer;
( h) A ny loan which is to be repaid on the calendar day on which
it is made;
(i) A ny loan made outside the 49 States of the United States and
the D istrict of C olu m bia;
(;) A ny loan to a member o f a national securities exchange for the
purpose o f financing his or his customers’ bona fide arbitrage trans
actions in securities;
(k ) A ny loan to a member of a national securities exchange for
the purpose of financing such member’s transactions as an odd-lot
dealer in securities with respect to which he is registered on such
national securities exchange as an odd-lot dealer.
S E C T IO N 221.3— M IS C E L L A N E O U S P R O V IS IO N S
%
(a)
In determining whether or not a loan is for the purpose specified
in § 221.1 or for any of the purposes specified in § 221.2, a bank may
!Sec . 221.3
REGULATION U
3
rely upon a statement with respect thereto only if such statement (1)
is signed by the borrow er; (2) is accepted in good faith and signed by
an officer o f the bank as having been so accepted; and (3) if it merely
states what is not the purpose o f the loan, is supported by a memo
randum or notation of the lending officer describing the purpose o f the
loan. T o accept the statement in good faith, the officer must be alert
to the circumstances surrounding the loan and the borrower and must
have no information which would put a prudent man upon inquiry
and if investigated with reasonable diligence would lead to the dis
covery o f the falsity of the statement.
( b ) (1 ) A loan made to a borrower when he has owned a stock
registered on a national securities exchange free o f any lien for a
continuous period o f as much as one year need not be treated as a
loan for the purpose o f “ carrying” that stock unless the loan is for
the purpose o f reducing or retiring indebtedness incurred to purchase
that stock. A loan also need not be treated as a loan for the purpose
o f “ carrying” a stock registered on a national securities exchange if
the loan is for the purpose o f meeting emergency expenses not reason
ably foreseeable or meeting recurring expenses the borrower has custom
arily met by tem porary borrowing.
(2)
A loan for the purpose o f purchasing or carrying a “ redeemable
security” (i.e. a redeemable proportionate interest in the issuer’s assets)
issued by an “ open-end com pany” , as defined in the Investment C om
pany A ct of 1940, whose assets customarily include stocks registered
on a national securities exchange, shall be deemed to be for the purpose
o f purchasing or carrying a stock so registered.
(c) In determining whether or not a security is a “ stock registered
on a national securities exchange” or a “ redeemable security” de
scribed in paragraph ( b ) ( 2 ) o f this section, a bank may rely upon
any reasonably current record o f such securities that is published or
specified in a publication o f the Board o f Governors o f the Federal
Reserve System.
id ) Except as provided in paragraph (r) o f this section, the renewal
or extension of maturity o f a loan need not be treated as the making
o f a loan if the amount o f the loan is not increased except by the
addition of interest or service charges on the loan or o f taxes on
transactions in connection with the loan.
(e ) A bank m ay accept the transfer o f a loan from another bank, or
permit the transfer o f a loan between borrowers, without following the
requirements o f this part as to the making o f a loan, provided the loan
is not increased and the collateral for the loan is not changed; and, after
such transfer, a bank m ay permit such withdrawals and substitutions of
4
REGULATION U
S e c . 2 2 1 .3
collateral as the bank might have permitted if it had been the original
maker o f the loan or had originally made the loan to the new borrower.
( /) A loan need n ot be treated as collateralled by securities which
are held b y the bank only in the capacity o f custodian, depositary or
trustee, or under similar circumstances, if the bank in good faith has not
relied upon such securities as collateral in the making or maintenance
o f the particular loan.
(g ) N othing in this part shall be construed to prevent a bank from
permitting withdrawals or substitutions o f securities to enable a bor
rower to participate in a reorganization.
(h ) N o mistake made in good faith in connection with the making or
maintenance o f a loan shall be deemed to be a violation o f this part.
(i) N othing in this part shall be construed as preventing a bank from
taking such action as it shall deem necessary in gpod faith for its own
protection.
(j) E very bank, and every person engaged in the business o f ex
tending credit who, in the ordinary course of business, extends credit
for the purpose o f purchasing or carrying securities registered on a
national securities exchange, shall make such reports as the Board of
Governors o f the Federal Reserve System m ay require to enable it to
perform the functions conferred upon it b y the Securities Exchange
A ct o f 1934 (48 Stat. 881; 15 U.S.C. Chapter 2 B ).
(/c) Terms used in this part have the meanings assigned to them in
a portion o f section 3 (a ) o f the Securities Exchange A ct o f 1934 (48
Stat. 882; 15 U.S.C. 7 8 c (a )), except that the term “ bank” does not in
clude a bank which is a member o f a national securities exchange.
(Z) The term “ stock” includes any security com m only known as a
stock, any voting trust certificate or other instrument representing
such a security, and any warrant or right to subscribe to or purchase
such a security.
(m ) Indebtedness “ subject to § 221.1” is indebtedness which is
secured directly or indirectly b y any stock (or made to a person
described in paragraph ( q ) o f this section ), is for the purpose o f pur
chasing or carrying any stock registered on a national securities
exchange, and is not excepted by § 221.2.
(n) (1) The bank shall identify all the collateral used to meet the
collateral requirements o f § 221.1 (entire indebtedness being con
sidered a single loan and collateral being similarly considered, as
required b y § 221.1) and shall not cancel the identification o f any
portion thereof except in circumstances that would permit the with
drawal o f that portion. Such identification m ay be made by any
reasonable method, and in the case o f indebtedness outstanding at
S e c . 2 2 1 .3
REGULATION U
5
the opening of business on June 15, 1959 need not be made until
immediately before some change in that or other indebtedness of the
borrower or in collateral therefor.
(2) Only the collateral required to be so identified shall have loan
value for purposes o f § 221.1 or be subject to the restrictions therein
specified with respect to withdrawals and substitutions; and
(3) F or any indebtedness o f the same borrower that is not subject
to § 221.1 (other than a loan described in § 2 21 .2(d ), ( / ) , ( g) or (h ) ) ,
the bank shall in good faith require as much collateral not so identified
as the bank would require (if any) if it held neither the indebtedness
subject to § 221.1 nor the identified collateral. This shall not be con
strued, however, to require the bank, after it has made any loan, to
obtain any collateral therefor because o f any deficiency in collateral
already existing at the opening of business on June 15, 1959, or any
decline in the value or quality o f the collateral or in the credit rating of
the borrower. It also does not require a bank to waive or forego any
lien. In addition, it shall not apply to a loan to enable the borrower to
meet emergency expenses not reasonably foreseeable, provided the loan
is supported by a statement o f the borrower describing the circum
stances, accepted in good faith and signed by an officer o f the bank as
having been so accepted.
(o )
In the case o f a loan to a member o f a national securities ex
change who is registered and acts as a specialist in securities on the
exchange for the purpose o f financing such member’s transactions as a
specialist in such securities, the maximum loan value o f any stock shall
be as determined by the bank in good faith provided that the specialist’s
exchange, in addition to other requirements applicable to specialists, is
designated by the Board o f Governors o f the Federal Reserve System
as requiring reports suitable for supplying current inform ation regard
ing specialists’ use o f credit pursuant to this section.
(p) A loan need not com ply with the other requirements o f this part
if it is to enable the borrower to acquire a stock b y exercising a right to
acquire such stock which is evidenced b y a warrant or certificate issued
to stockholders and expiring within 90 days of issuance: Provided, That
(1) each such acquisition under this paragraph shall be treated sepa
rately, and the loan when made shall not exceed 75 percent of the cur
rent market value o f the stock so acquired as determined b y any rea
sonable method, (2) while the borrower has any loan outstanding at the
bank under this paragraph no withdrawal or substitution o f stock used
to make such loan shall be permissible, except that when the loan has
become equal to or less than the maximum loan value o f the stock as
prescribed for § 221.1 in § 221.4 the stock and indebtedness may there
after be treated as subject to § 221.1 instead o f this paragraph, and (3)
6
REGULATION U
S e c . 2 2 1 .3
no loan shall be made under this paragraph at any time when the
borrower has any such loan at the bank which has been outstanding
more than 9 months without becoming eligible to be treated as subject
to §221.1. In order to facilitate the exercise o f a right under this
paragraph, a bank m ay permit the right to be withdrawn from a loan
subject to § 221.1 without regard to any other requirement o f this
part.
(q ) A ny loan to a person not subject to this part (Regulation U)
or to Part 220 (Regulation T ) engaged principally, or as one o f the
person’s important activities, in the business o f making loans for the
purpose o f purchasing or carrying stocks registered on a national
securities exchange, is a loan for the purpose o f purchasing or carry
ing stocks so registered unless the loan and its purposes are effectively
and unmistakably separated and disassociated from any financing or
refinancing, for the borrower or others, o f any purchasing or carrying
o f stocks so registered. A ny loan to any such borrower, unless the
loan is so separated and disassociated or is excepted by § 221.2, is a
loan “ subject to §221.1” regardless of whether or not the loan is
secured by any stock; and no bank shall make any such loan subject
to § 221.1 to any such borrower on or after June 15, 1959 without
collateral or without the loan being secured as would be required by
this Part 221 if it were secured by any stock. A ny such loan subject
to §221.1 to any such borrower, whether or not made after June 15.
1959, shall be subject to the other provisions o f this Part 221 appli
cable to loans subject to §221.1, including provisions regarding with
drawal and substitution o f collateral.
(r) If. on or after June 15, 1959, a loan is made for the purpose of
purchasing or carrying a security other than a stock registered on a
national securities exchange and the loan is secured by the security,
but subsequently there is substituted as direct or indirect collateral
for the loan a stock so registered which is acquired b y the borrower
through the conversion or exchange of the security pursuant to its
terms, the loan shall thereupon be deemed to be for the purpose of
purchasing or carrying a stock so registered. In any such case, the
amount o f the outstanding loan, or such amount plus any increase
therein to enable the borrower to acquire the stock so registered, shall
not be permitted on the date such stock is substituted as collateral to
exceed the maximum loan value o f the collateral for the loan on such
date, and thereafter such indebtedness shall be treated as subject to
§2 2 1 .1 ; provided, however, that any reduction in the loan or deposit
o f collateral required on that date to meet this requirement m ay be
brought about within 30 days o f such substitution.
(S ection 221.4. Supplem ent, containing m axim um loan values and retention
requirements, which are changed from tim e to tim e, is printed separately.)
)
APPENDIX
There are printed below certain provisions of the Securities E x
change A ct of 1934:
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 o f another person acting as
broker, or to make use o f the facilities o f an exchange for trans
actions thereon without payment o f a commission or fee or with
the payment o f a commission or fee which is less than that
charged the general public, and includes any firm transacting a
business as broker or dealer o f which a member is a partner, and
any partner of any such firm.
(4) The term “ broker” means any person engaged in the busi
ness 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 busi
ness o f 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 organ
ized under the laws o f 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 o f any
State or of the United States, a substantial portion o f the busi
ness of which consists o f receiving deposits or exercising fiduciary
powers similar to those permitted to national banks under section
l l ( k ) o f the Federal Reserve A ct, 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
o f evading the provisions o f this title, and (D ) a receiver, con
servator, or other liquidating agent o f any institution or firm
included in clauses ( A ) , (B ), or (C ) o f this paragraph.
*
*
*
*
*
(9) The term “ person” means an individual, a corporation, a
partnership, an association, a join t-stock com pany, a business
trust, or an unincorporated organization.
(10) The term “ security” means any note, stock, treasury
stock, bond, debenture, certificate o f interest or participation in
7
REGULATION U
any profit-sharing agreement or in any oil, gas, or other mineral
royalty or lease, any collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment con
tract, voting-trust certificate, certificate o f deposit, for a security,
or in general, any instrument com m only known as a “ security” ;
or any certificate o f interest or participation in, tem porary or
interim certificate for, receipt for, or warrant or right to sub
scribe to or purchase, any o f the foregoing; but shall not include
currency or any note, draft, bill o f exchange, or banker’s accept
ance which has a m aturity at the time o f issuance o f not exceed
ing nine months, exclusive o f days o f grace, or any renewal
thereof the maturity o f which is likewise limited.
*
*
*
#
#
Sec. 7. (a) F or the purpose o f preventing the excessive use of
credit for the purchase or carrying o f securities, the B oard of
Governors of the Federal Reserve System shall, prior to the effec
tive date o f this section and from time to time thereafter, pre
scribe rules and regulations with respect to the amount of credit
that m ay be initially extended and subsequently maintained on
any security (other than an exempted security) registered on a
national securities exchange. F or the initial extension o f 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 o f the current market price o f the security,
or
(2) 100 per centum o f the lowest market price o f the security
during the preceding thirty-six calendar months, but not more
than 75 per centum o f the current market price.
Such rules and regulations m ay make appropriate provision with
respect to the carrying o f undermargined accounts for limited
periods and under specified conditions; the withdrawal o f funds
or securities; the substitution or additional purchases o f securi
ties; the transfer o f accounts from one lender to another; special
or different margin requirements for delayed deliveries, short
sales, arbitrage transactions, and securities to which paragraph
(2) o f 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. F or the pur
poses o f paragraph (2) o f 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
REGULATION U
9
section, the Board o f Governors of the Federal Reserve System,
m ay, from time to time, with respect to all or specified securities
or transactions, or classes o f securities, or classes of transactions,
by such rules and regulations (1) prescribe such lower margin
requirements for the initial extension or maintenance o f credit as
it deems necessary or appropriate for the accom m odation of com
merce and industry, having due regard to the general credit situa
tion o f the country, and (2) prescribe such higher margin require
ments 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 o f a national securities
exchange or any broker or dealer who transacts a business in
securities through the medium o f any such member, directly or
indirectly to extend or maintain credit or arrange for the exten
sion or maintenance of credit to or for any customer—
(1) On any security (other than an exempted security) regis
tered on a national securities exchange, in contravention o f the
rules and regulations which the Board o f Governors o f the Fed
eral Reserve System shall prescribe under subsections (a) and
(b ) o f this section.
(2) W ithout collateral or on any collateral other than ex
empted securities a n d /o r securities registered upon a national
securities exchange, except in accordance with such rules and
regulations as the Board o f Governors o f the Federal Reserve
System m ay 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 conform ity with the rules
and regulations o f the Board o f Governors o f the Federal R e
serve System, and (B ) to permit the extension or maintenance
of credit in cases where the extension or maintenance o f credit
is not for the purpose of purchasing or carrying securities or of
evading or circumventing the provisions o f paragraph (1) of
this subsection.
(d) It shall be unlawful for any person not subject to sub
section (c) to extend or maintain credit or to arrange for the
extension or maintenance o f credit for the purpose o f purchasing
or carrying any security registered on a national securities ex
change, in contravention o f such rules and regulations as the
Board o f Governors o f the Federal Reserve System shall prescribe
to prevent the excessive use o f credit for the purchasing or carry
ing o f or trading in securities in circumvention o f the other pro
visions o f this section. Such rules and regulations m ay impose
upon all loans made for the purpose o f purchasing or carrying
REGULATION U
securities registered on national securities exchanges limitations
similar to those imposed upon members, brokers, or dealers by
subsection (c) o f this section and the rules and regulations there
under. This subsection and the rules and regulations thereunder
shall not apply (A ) to a loan made by a person not in the ordi
nary course of his business, (B ) to a loan on an exempted security,
(C ) to a loan to a dealer to aid in the financing o f the distribution
o f securities to customers not through the medium o f 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 Board
o f Governors o f the Federal Reserve System shall, b y such rules
and regulations as it m ay 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 o f this section or the rules and regulations
thereunder shall not apply on or before July 1, 1937, to any loan
or extension o f credit made prior to the enactment o f this title
or to the maintenance, renewal, or extension o f any such loan or
credit, except to the extent that the Board o f Governors o f the
Federal Reserve System m ay by rules and regulations prescribe
as necessary to prevent the circumvention o f the provisions of
this section or the rules and regulations thereunder b y means of
withdrawals o f funds or securities, substitutions o f securities, or
additional purchases or b y any other device.
Sec. 2 9 .(a) A ny condition, stipulation, or provision binding
any person to waive com pliance with any provision o f this title
or o f any rule or regulation thereunder, or o f any rule o f an
exchange required thereby shall be void.
(b )
Every contract made in violation o f any provision o f this
title or o f any rule or regulation thereunder, and every contract
(including any contract for listing a security on an exchange)
heretofore or hereafter made the performance o f which involves
the violation of, or the continuance o f any relationship or practice
in violation of, any provision o f this title or any rule or regu
lation thereunder, shall be void (1) as regards the rights o f any
person who, in violation o f any such provision, rule, or regulation,
shall have made or engaged in the performance o f any such con
tract, and (2) as regards the rights o f any person who, not being
a party to such contract, shall have acquired any right there
under with actual knowledge of the facts by reason o f which the
making or performance o f such contract was in violation o f any
such provision, rule or regulation. * * *
REGULATION U
11
(c)
N othing in this title shall be construed (1) to affect the
validity o f any loan or extension o f credit (or any extension or
renewal thereof) made or of any lien created prior or subsequent
to the enactment o f this title, unless at the time o f the making
o f such loan or extension o f credit (or extension or renewal
thereof) or the creating o f such lien, the person making such loan
or extension o f credit (or extension or renewal thereof ) or acquir
ing such lien shall have actual knowledge o f facts b y reason of
which the making o f such loan or extension o f credit (or exten
sion or renewal thereof) or the acquisition o f such lien is a viola
tion o f the provisions o f this title or any rule or regulation there
under, or (2) to afford a defense to the collection o f any debt or
obligation or the enforcement o f any lien by any person who shall
have acquired such debt, obligation, or lien in good faith for value
and without actual knowledge o f the violation o f any provision
o f this title or any rule or regulation thereunder affecting the
legality o f such debt, obligation, or lien.
Sec. 3 2 .(a) Any person who willfully violates any provision of
this title, or any rule or regulation thereunder the violation o f which
is made unlawful or the observance o f which is required under
the terms o f 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 or any undertaking contained in a
registration statement as provided in subsection (d ) o f section
15 o f this title, 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 im posed; but no person shall be subject
to imprisonment under this section for the violation o f any rule
or regulation if he proves that he had no knowledge o f such rule
or regulation.
SUPPLEMENT T O REGULATION U
S ection 2 2 1 .4 — SU P P L E M E N T
I s s u e d b y t h e B oard o f G o v e r n o r s o f t h e F e d e ra l R e s e r v e S y s t e m
E ffective June 15, 1959
(а) Maximum loan value o f stocks.— For the purpose of § 221.1,
the maximum loan value o f any stock, whether or not registered on a
national securities exchange, shall be 10 percent o f its current market
value, as determined by any reasonable method.
(б ) Retention requirement.— For the purpose o f §221.1, in the
case of a loan which would exceed the maximum loan value o f the
collateral following a withdrawal of collateral, the “ retention require
ment” of a stock, whether or not registered on a national securities
exchange, shall be 50 percent o f its current market value, as deter
mined by any reasonable method.
Purchase-and-Sale Substitution on Same Day
Under Amended Regulation U
Amendments to Regulation U effective June 15, 1959 deal, among
other things, with changes in collateral for a “ restricted loan ” , i.e.,
a bank loan that exceeds the maximum loan value o f the collateral
therefor. In connection with those amendments an inquiry has been
received as to whether the bank may permit a substitution o f collateral
fo r such a loan under the amended regulation in a case in which the
excess o f the loan over the maximum loan value is not thereby
increased and the substitution occurs in the form o f a purchase and
sale o f collateral, both the purchase and sale orders being executed 011
the same day.
The bank may permit such a purchase-and-sale substitution under
the amended Regulation U without additional collateral or reduction
in the loan if it reasonably ascertains, and has evidence thereof in
its records, that the purchase and sale orders were executed on the
same day. The controlling events which must occur on the same day
are the executions o f the purchase order and sale order, and not the
bank’s receipt or release o f stock certificates. It may be noted that
the result is substantially similar to that under the June 15, 1959
amendments to Regulation T . Substitutions that do not involve a
same-day purchase and sale are subject to the withdrawal limitations
under both regulations.
Interpretation by Board o f Governors
o f the Federal Eeserve System
May 29, 1959
PRINTED IN N E W YORK
BO ARD OF GOVERNORS
o f the
FEDERAL RESERVE SYSTEM
CREDIT BY BROKERS, DEALERS, AND
MEMBERS OF NATIONAL SECURITIES
EXCHANGES
REGULATION T
(1 2
As A m ended
CFR 220)
to Ju n e 1 5 , 1 9 59
INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed to a
national securities exchange o f which the person making the in
quiry is a member or the facilities o f which are used for his trans
actions, or, if this be not practicable, the inquiry should be
addressed to the Federal Reserve bank of the district in which the
inquiry arises. In the event that an official o f an exchange desires
information as to any such question, he should make inquiry of
the Federal Reserve bank o f the district in which the exchange is
located.
CONTENTS
(T h is
tex t corresp on d s to
C h a p te r I I ,
th e
C ode
P a rt
of
2 2 0 , c ite d
F e d e r a l R e g u la t io n s , T it le
as
12
C F R
12,
220)
Page
S e c . 2 20 .1. S c o pe
of
P a r t .........................................................................................................................
1
S e c . 2 20 .2. D
e f i n i t i o n s ..............................................................................................................................
1
S e c . 2 20 .3. G
eneral
A c c o u n t s .............................................................................................................
2
C o n t e n t s o f g e n e r a l a c c o u n t ...................................................................
2
( a)
( b)
(c )
( d)
(e)
(j)
( g)
( h)
G en era l
r u l e .......................................................................................................
2
M a x i m u m l o a n v a lu e a n d c u r r e n t m a r k e t v a l u e ........................
3
A d j u s t e d d e b it b a l a n c e ...............................................................................
4
L i q u i d a t i o n in lie u o f d e p o s i t .................................................................
5
E x t e n s io n s o f t i m e .........................................................................................
5
T r a n s a c t io n s o n g i v e n d a y ........................................................................
5
U n is s u e d s e c u r i t i e s .........................................................................................
6
S e c . 2 20 .4. S p e c ia l A c c o u n t s .................................................................................................................
6
( a)
( b)
(c)
( d)
(e)
(j)
( g)
( h)
G en era l
r u l e .......................................................................................................
6
S p e c i a l o m n i b u s a c c o u n t ...........................................................................
7
S p e c ia l c a s h a c c o u n t ....................................................................................
7
S p e c ia l a r b it r a g e a c c o u n t ..........................................................................
9
S p e c ia l c o m m o d i t y a c c o u n t ......................................................................
9
S p e c ia l m is c e lla n e o u s a c c o u n t .................................................................
9
S p e c ia lis t ’s a c c o u n t .........................................................................................
11
S p e c ia l s u b s c r ip t io n s a c c o u n t .................................................................
12
S e c . 220.5 B o r r o w in g
( a)
( b)
(c)
S e c . 2 20 .6. C e r t a in
(a)
( b)
(c)
( d)
(e)
(j)
( g)
( h)
( i)
(j)
( k)
S e c . 2 2 0 .7 . M
e a l e r s .........................................
12
r u l e ........................................................................................................
12
A g r e e m e n t s o f n o n m e m b e r b a n k s .......................................................
13
B o r r o w in g f r o m
13
by
M
G en era l
T
D
B rokers,
and
D
o t h e r c r e d i t o r s ............................................................
....................................................................................
13
A c c o u n t s o f p a r t n e r s ....................................................................................
13
e c h n ic a l
e t a il s
C o n t r i b u t i o n t o j o i n t a d v e n t u r e ..........................................................
13
G u a ra n te e d
a c c o u n t s ....................................................................................
14
T r a n s f e r o f a c c o u n t s ....................................................................................
14
R e o r g a n i z a t i o n s .................................................................................................
14
T i m e o f r e c e ip t o f fu n d s o r s e c u r i t i e s ..................................................
14
I n t e r e s t , s e r v ic e c h a r g e s , e t c ......................................................................
15
B o r r o w in g a n d le n d in g s e c u r i t i e s ..........................................................
15
C r e d i t f o r c l e a r a n c e o f s e c u r i t i e s ..........................................................
15
F o r e i g n c u r r e n c y ..............................................................................................
16
I n n o c e n t m is t a k e s ...........................................................................................
16
P r o v i s i o n s .........................................................................................
16
A r r a n g in g f o r lo a n s b y o t h e r s .................................................................
16
M a i n t e n a n c e o f c r e d i t . ................................................................................
16
D e c la r a t i o n a s t o p u r p o s e o f l o a n ..........................................................
16
is c e l l a n e o u s
(a)
( b)
( c)
(d)
(e)
em bers,
R e p o r t s ...................................................................................................................
17
A d d i t i o n a l r e q u ir e m e n t s b y e x c h a n g e s a n d c r e d i t o r s ..............
17
A p p e n d i x ..............................................................................................................................................................
18
REGULATION T
(12 C F R 220)
As A m ended to June 15, 1959
CREDIT BY BROKERS, DEALERS, AND MEMBERS
OF NATIONAL SECURITIES EXCHANGES
S E C T IO N 220.1— S C O P E O F P A R T
This part is issued b y the B oard o f Governors o f the Federal Reserve
System (hereinafter called the “ B oard” ) pursuant to the Securities
Exchange A ct o f 1934 (called the “ A ct” in this p art), particularly
sections 7 and 8 (a ) thereof (48 Stat. 886, 888; 15 U.S.C. 78g, 7 8 h (a )),
and applies to every member of a national securities exchange and to
every broker or dealer who transacts a business in securities through
the medium o f any such member.
S E C T IO N 220.2— D E F IN IT IO N S
F or the purposes o f this part, unless the context otherwise requires:
(a) The terms “ person” , “ member” , “ broker” , “ dealer” , “ buy” ,
“ purchase” , “ sale” , “ sell” , “ security” , and “ bank” have the mean
ings given them in section 3 (a ) o f the A ct (48 Stat. 882; 15 U.S.C.
7 8 c (a )).
(b) The term “ creditor” means any member o f a national securi
ties exchange or any broker or dealer who transacts a business in
securities through the medium o f any such member.
(c) The term “ customer” includes any person, or any group of
persons acting join tly, (1) to or for whom a creditor is extending or
maintaining any credit, or (2) who, in accordance with the ordinary
usage o f the trade, would be considered a customer o f the creditor.
I t includes, in case the creditor is a firm, any partner in the firm who
would be considered a customer o f the firm if he were not a partner,
and includes any join t adventure in which a creditor participates and
which would be considered a customer o f the creditor if the creditor
were not a participant.
(d ) The term “ registered security” means any security which (1)
is registered on a national securities exchange; or (2) in consequence
o f its having unlisted trading privileges on a national securities ex
change is deemed, under the provisions o f section 1 2 (f) o f the A ct (49
Stat. 1375; 15 U.S.C. 781), to be registered on a national securities ex
change; or (3) is exempted by the Securities and Exchange Commission
from the operation o f section 7 (c) (2) o f the A ct (48 Stat. 887; 15 U.S.C.
l
2
REGULATION T
S e c s . 2 2 0 .2 - 2 2 0 . 3
7 8 g (c) (2 )) only to the extent necessary to render lawful any direct or
indirect extension or maintenance o f credit on such security or any
direct or indirect arrangement therefor which would not have been
unlawful if such security had been a security (other than an exempted
security) registered on a national securities exchange.
(e)
The term “ exempted security” has the meaning given it in sec
tion 3 (a ) o f the A ct (48 Stat. 884; 150 U.S.C. 78c (a) (1 2 )) except that
the term does not include a security which is exempted b y the Securities
and Exchange Commission from the operation of section 7 (c ) (2) o f the
A ct (48 Stat. 887; 15 U.S.C. 7 8g(c) (2 )) only to the extent described in
paragraph (d) (3) o f this section.
S E C T IO N 220.3— G E N E R A L A C C O U N T S
(a) Contents o f general account.— All financial relations between
a creditor and a customer, whether recorded in one record or in more
than one record, shall be included in and be deemed to be parts o f the
customer’s general account with the creditor, except that the relations
which § 220.4 permits to be included in any special account pro
vided for b y that section m ay be included in the appropriate special
account, and all transactions in commodities for or with any customer
shall be included in the special com m odity account provided for by
§§ 220.4 ( a ) , (e ). During any period when § 220.8 specifies that regis
tered securities (other than exempted securities) shall have no loan
value in a general account, any transaction consisting o f a purchase
o f a security other than a purchase o f an exempted security or a
purchase o f a security to reduce or close out a short position shall be
effected in the special cash account provided for by § 220.4(c) or in
some other appropriate special account provided for by § 220.4.
(b ) General rule.— (1) A creditor shall not effect for or with any
customer in a general account any transaction which, in com bination
with the other transactions effected in the account on the same day,
creates an excess o f the adjusted debit balance o f the account over the
maximum loan value o f the securities in the account, or increases any
such excess, unless in connection therewith the creditor obtains, as
prom ptly as possible and in any event before the expiration o f four full
business days following the date o f such transaction, the deposit into
the account o f cash or securities in such amount that the cash deposited
plus the maximum loan value o f the securities deposited equals or ex
ceeds the excess so created or the increase so caused.
(2)
Except as permitted in this subparagraph, no withdrawal of
cash or registered or exempted securities shall be permissible if the
adjusted debit balance o f the account would exceed the maximum loan
value o f the securities in the account after such withdrawal. The
exceptions are available only in the event no cash or securities need
S ec. 2 2 0 3
REGULATION T
3
to be deposited in the account in connection with a transaction on a
previous day and none would need to be deposited thereafter in con
nection with any withdrawal o f cash or securities on the current day.
The permissible exceptions are: (i) registered or exempted securities
may be withdrawn upon the deposit in the account o f cash (or regis
tered or exempted securities counted at their maximum loan value) at
least equal to the “ retention requirement” o f any registered or ex
empted securities withdrawn, or (ii) cash m ay be withdrawn upon the
deposit in the account o f registered or exempted securities having a
maximum loan value at least equal to the ^amount o f cash withdrawn,
or (iii) upon the sale (other than short sale) of registered or exempted
securities in the account, there m ay be withdrawn in cash an amount
equal to the difference between the current market value o f the securi
ties sold and the “ retention requirement” of those securities. The
“ retention requirement” o f an exempted security is the same as its
maximum loan value, and the “ retention requirement” o f a registered
nonexempted security is prescribed from time to time in § 220.8(c)
(the Supplement to Regulation T ) .
(3)
Rules for computing the maximum loan value o f the securities
in a general account and the adjusted debit balance o f such an account
are provided in paragraphs (c) and (d ) o f this section, and certain
modifications o f and exceptions to the general rule stated in this para
graph are provided in the subsequent paragraphs o f this section and in
§ 220 . 6 .
(c) Maximum loan value and current market value.— (1) The
maximum loan value o f the securities in a general account is the sum of
the maximum loan values o f the individual securities in the account, in
cluding securities (other than unissued securities) bought for the ac
count but not yet debited thereto, but excluding securities sold for the
account whether or not paym ent has been credited thereto.
(2) Except as otherwise provided in this paragraph, the maximum
loan value o f a registered security (other than an exempted security)
in a general account shall be such maximum loan value as the Board
shall prescribe for general accounts from time to time in § 220.8,
and the maximum loan value o f an exempted security shall be as deter
mined by the creditor in good faith. N o collateral other than registered
securities or exempted securities shall have any loan value in a general
account.
(3) A warrant or certificate which evidences only a right to subscribe
to or otherwise acquire any security and which expires within ninety
days o f issuance shall have no loan value in a general account; but, if
the account contains, in addition to such warrant or certificate, the
security to the holder o f which such warrant or certificate has been
issued, the current market value o f such security (if the security be a
4
REGULATION T
S e c . 2 2 0 .3
registered security) shall, for the purpose o f calculating its maximum
loan value, be increased b y the current market value of such warrant
or certificate.
(4)
F or the current m arket value o f a security throughout the day
o f its purchase or sale, the creditor shall use its total cost or the net
proceeds o f its sale, as the case m ay be, and at any other time shall
use the closing sale price o f the security on the preceding business day
as shown by any regularly published reporting or quotation service.
In the absence o f any such closing sale price, the creditor m ay use any
reasonable estimate o f the market value of such security as o f the close
o f business on such preceding business day.
(d)
Adjusted debit balance.— F or the purposes o f this part, the
adjusted debit balance o f a general account shall be calculated by
taking the sum o f the following items:
(1) the net debit balance, if any, of the account;
(2) the total cost o f any securities (other than unissued securi
ties) bought for the account but not yet debited thereto;
(3) the current market value o f any securities (other than un
issued securities) sold short in the account plus, for each such
security (other than an exempted security), such amount as the
B oard shall prescribe from time to time in § 220.8 as the margin
required for such short sales, except that such amount so pre
scribed in § 220.8 need not be included when there are held in
the account securities exchangeable or convertible within a rea
sonable time, without restriction other than the paym ent o f money,
into such securities sold short;
(4) the amount o f margin specified by paragraph (h ) o f this
section for every net commitment in the account in unissued securi
ties, plus all unrealized losses on each commitment in unissued
securities and minus all unrealized gains (not exceeding the re
quired margin) on each commitment in unissued securities; and
(5) the amount o f any margin custom arily required b y the
creditor in connection with his endorsement or guarantee o f any
put, call or other option;
and deducting therefrom the sum o f the following items:
(6) the net credit balance, if any, o f the account; and
(7) the net proceeds o f sale o f any securities (other than un
issued securities) sold for the account but fo r which paym ent has
n ot yet been credited thereto.
In case the general account is the account o f a partner o f the creditor
or the account o f a join t adventure in which the creditor participates,
the adjusted debit balance shall be computed according to the fore
going rule and the supplementary rules prescribed in §§ 220.6(a) and
2 20 .6(b ).
REGULATION T
S e c . 2 2 0 .3
5
(e)
Liquidation in lieu of deposit.*— In any case in which the
deposit required by paragraph (6) o f this section, or any portion
thereof, is not obtained by the creditor within the four-day period
specified therein, registered nonexempted securities shall be sold (or,
to the extent that there are insufficient registered nonexempted securi
ties in the account, other liquidating transactions shall be effected in
the accou nt), prior to the expiration of such four-day period, in such
amount that the resulting decrease in the adjusted debit balance of
the account exceeds, by an amount at least as great as such required
deposit or the undeposited portion thereof, the "retention requirement”
o f any registered or exempted securities sold.
(/) Extensions o f time.— In exceptional cases, the four-day period
specified in paragraph (b ) o f this section m ay, on application of the
creditor, be extended for one or more limited periods commensurate
with the circumstances b y any regularly constituted committee o f a
national securities exchange having jurisdiction over the business con
duct o f its members, of which exchange the creditor is a member or
through which his transactions are effected, provided such committee
is satisfied that the creditor is acting in good faith in m aking the
application and that the circumstances are in fact exceptional and
warrant such action.
((?) Transactions on given day.— F or the purposes o f paragraph (b)
o f this section, the question of whether or not an excess o f the adjusted
debit balance of a general account over the maximum loan value of
the securities in the account is created or increased on a given day
shall be determined on the basis o f all the transactions in the account
on that day exclusive o f any deposit o f cash, deposit o f securities,
covering transaction or other liquidation that has been effected on the
given day, pursuant to the requirements o f paragraphs (6 ) or (e) of
this section, in connection with a transaction on a previous day. In
any case in which an excess so created, or increase so caused, by
transactions on a given day does not exceed $100, the creditor need
not obtain the deposit specified therefor in subparagraph (b ) { 1) of
this section. A ny transaction which serves to meet the requirements
o f paragraph (e) o f this section or otherwise serves to permit any
offsetting transaction in an account shall, to that extent, be unavail
able to permit any other transaction in the account. For the purposes
o f this part (Regulation T ) , if a security has maximum loan value in
the account under subparagraph (e )( 1 ) o f this section, a sale o f the
same security (even though not the same certificate) in the account
’ T h is requirem ent relates t o th e a ction t o be taken w hen a cu stom er fails t o m ake th e deposit
required b y ? 220.3(b). an d it is not intended t o countenance on th e part o f custom ers th e practice
com m on ly know n as “ fr e e -r id in g ” , t o prevent w hich th e principal national securities exchanges
h a ve a d o p te d certain rules.
See th e rules o f such exchanges and § 220.7(e).
6
REGULATION T
S e c s . 2 2 0 .3 - 2 2 0 . 4
shall be deemed to be a long sale and shall not be deemed to be or
treated as a short sale.
(h )
Unissued securities.— (1) The amount to be included in the
adjusted debit balance o f a general account as the margin required for
a net long commitment in unissued securities shall be the current
market value of the net amount o f unissued securities long minus the
maximum loan value which such net amount o f securities would have
if they were issued registered securities held in the account; and the
amount to be so included as the margin required for a net short com m it
ment in unissued securities shall be the amount which would be required
as margin for the net amount o f unissued securities short if such securi
ties were issued securities and were sold short in the account: Provided,
T hat no amount need be included as margin for a net short commitment
in unissued securities when there are held in the account securities in
respect o f which the unissued securities are to be issued, nor for any
net position in unissued securities that are exempted securities.
(2)
W henever a creditor, pursuant to a purchase o f an unissued
security for a customer, receives an issued security which is not a regis
tered or exempted security, the creditor shall treat any paym ent by
him for such issued security as a transaction (other than a withdrawal)
which increases the adjusted debit balance o f the account b y the amount
o f the paym ent minus the amount required to be included in the ad
justed debit balance o f the account, at the time o f and in connection
with the purchase o f the unissued security, as the margin required for
such purchase.
S E C T IO N 220.4— S P E C IA L A C C O U N T S
(a)
General rule.— (1) Pursuant to this section, a creditor m ay
establish for any customer one or more special accounts.
(2) Each such special account shall be recorded separately and shall
be confined to the transactions and relations specifically authorized for
such account b y the appropriate paragraph o f this section and to trans
actions and relations incidental to those specifically authorized. An
adequate record shall be maintained showing for each such account the
full details o f all transactions in the account.
(3) A special account established pursuant to this section shall not
be used in any w ay for the purpose o f evading or circumventing any of
the provisions o f this part. I f a customer has with a creditor both a
general account and one or more such special accounts, the creditor
shall treat each such special account as if the customer had with the
creditor no general account.
(4) T h e only other conditions to which transactions in such special
accounts shall be subject under the provisions of this part shall be such
S e c . 2 2 0 .4
REGULATION T
7
conditions as are specified in the appropriate paragraph o f this section
and in §§ 220.2, 220.6, 220.7.
(6)
Special omnibus account.— In a special omnibus account, a
member o f a national securities exchange m ay effect and finance trans
actions for a broker or dealer from whom the member accepts in good
faith a signed statement to the effect that he is subject to the provisions
o f this part (or that he does not extend or maintain credit to or for
customers except in accordance therewith as if he were subject thereto)
and from whom the member receives (1) written notice, pursuant to a
rule o f the Securities and Exchange Commission concerning the hypoth
ecation o f customers’ securities b y brokers or dealers (Rule X -8 C -1
or Rule X -1 5 C 2 -1 ), to the effect that all securities carried in the account
will be carried for the account o f the customers o f the broker or dealer
and (2) written notice that any short sales effected in the account will
be short sales made in behalf o f the customers o f the broker or dealer
other than his partners.
(c)
Special cash account.— (1) In a special cash account, a creditor
m ay effect for or with any customer bona fide cash transactions in
securities in which the creditor m ay:
(i) Purchase any security for, or sell any security to, any cus
tomer, provided funds sufficient for the purpose are already held
in the account or the purchase or sale is in reliance upon an agree
ment accepted by the creditor in good faith that the customer
will prom ptly make full cash payment for the security and that
the customer does not contemplate selling the security prior to
making such payment.
(ii) Sell any security for, or purchase any security from, any
customer, provided the security is held in the account or the
creditor is informed that the customer or his principal owns the
security and the purchase or sale is in reliance upon an agreement
accepted b y the creditor in good faith that the security is to be
promptly deposited in the account.
(2) In case a customer purchases a security (other than an exempted
security) in the special cash account and does not make full cash p a y
ment for the security within 7 days after the date on which the security
is so purchased, the creditor shall, except as provided in subparagraphs
( 3 ) -( 7 ) o f this paragraph, prom ptly cancel or otherwise liquidate the
transaction or the unsettled portion thereof.
(3) I f the security when so purchased is an unissued security, the
period applicable to the transaction under subparagraph (2) o f this
paragraph shall be 7 days after the date on which the security is made
available by the issuer for delivery to purchasers. I f the security when
so purchased is a “ when distributed” security which is to be distributed
8
REGULATION T
S e c . 2 2 0 .4
in accordance with a published plan, the period applicable to the trans
action under subparagraph (2) o f this paragraph shall be 7 days after
the date on which the security is so distributed.
(4) I f any shipment o f securities is incidental to the consummation
o f the transaction, the period applicable to the transaction under subparagraph (2) o f this paragraph shall be deemed to be extended by
the number o f days required for all such shipments, but n ot b y more
than 7 days.
(5) I f the creditor, acting in good faith in accordance with subparagraph (1) o f this paragraph, purchases a security for a customer,
or sells a security to a customer, with the understanding that he is to
deliver the security prom ptly to the customer, and the full cash p a y
ment to be made prom ptly b y the customer is to be made against such
delivery, the creditor m ay at his option treat the transaction as one to
which the period applicable under subparagraph (2) o f this paragraph
is not the 7 days therein specified but 35 days after the date o f such
purchase or sale.
(6) I f an appropriate committee of a national securities exchange
or a national securities association is satisfied that the creditor is acting
in good faith in making the application, that the application relates to
a bona fide cash transaction, and that exceptional circumstances war
rant such action, such committee, on application o f the creditor, may
(i) extend any period specified in subparagraphs (2 ), (3 ), (4) or (5)
o f this paragraph for one or more limited periods commensurate with
the circumstances, or (ii), in case a security purchased by the customer
in the special cash account is a registered or exempted security, author
ize transfer of the transaction to a general account or special omnibus
account and com pletion o f the transaction pursuant to the provisions
o f this part relating to such an account.
(7) The 7-day periods specified in this paragraph refer to 7 full
business days. The 35-day period and the 90-day period specified in
this paragraph refer to calendar days, but if the last day o f any such
period is a Saturday, Sunday, or holiday, such period shall be con
sidered to end on the next full business day. For the purposes o f this
paragraph, a creditor m ay, at his option, disregard any sum due by
the customer not exceeding $100.
(8) Unless funds sufficient for the purpose are already in the a c
count, no security other than an exempted security shall be purchased
for, or sold to, any customer in a special cash account with the creditor
if any security other than an exempted security has been purchased
by such customer in such an account during the preceding 90 days,
and then, for any reason whatever, without having been previously
paid for in full by the customer, the security has been sold in the
account or delivered out to any broker or dealer: Provided, T h at an
S e c . 2 2 0 .4
REGULATION T
9
appropriate committee o f a national securities exchange or a national
securities association, on application o f the creditor, m ay authorize
the creditor to disregard for the purposes o f this subparagraph any
given instance o f the type therein described if the committee is satis
fied that both creditor and customer are acting in good faith and that
circumstances warrant such authorization. For the purposes o f this
subparagraph, the cancellation o f a transaction, otherwise than to
correct an error, shall be deemed to constitute a sale. The creditor
may disregard for the purposes o f this subparagraph a sale without
prior paym ent provided full cash payment is received within the
period described by subparagraph (2) o f this paragraph and the
customer has not withdrawn the proceeds o f sale on or before the day
on which such payment (and also final payment o f any check received
in that connection) is received. The creditor m ay so disregard a
delivery o f a security to another broker or dealer provided such de
livery was for deposit into a special cash account which the latter
broker or dealer maintains for the same customer and in which a c
count there are already sufficient funds to pay for the security so
purchased; and for the purpose o f determining in that connection the
status o f a customer’s account at another broker or dealer, a creditor
may rely upon a written statement which he accepts in good faith
from such other broker or dealer.
(d ) Special arbitrage account.— In a special arbitrage account, a
member of a national securities exchange may effect and finance for
any customer bona fide arbitrage transactions in securities. For the
purposes o f this paragraph, the term “ arbitrage” means (1) a pur
chase or sale o f a security in one market together with an offsetting
sale or purchase o f the same security in a different market at as nearly
the same time as practicable, for the purpose o f taking advantage o f a
difference in prices in the two markets, or (2) a purchase of a security
which is, without restriction other than the payment o f money, ex
changeable or convertible within a reasonable time into a second
security together with an offsetting sale at or about the same time of
such second security, for the purpose of taking advantage o f a disparity
in the prices o f the tw o securities.
(e) Special commodity account.— In a special com m odity account,
a creditor m ay effect and carry for any customer transactions in com
modities.
(/) Special miscellaneous account.— In a special miscellaneous ac
count, a creditor m ay:
(1)
W ith the approval o f any regularly constituted committee of
a national securities exchange having jurisdiction over the business
REGULATION T
10
S e c . 2 2 0 .4
conduct o f its members, make and maintain loans to meet the emer
gency needs o f any creditor;
(2) (i) M ake loans, and may maintain loans, (a) to or for any
partner o f a firm which is a member o f a national securities exchange
to enable such partner to make a contribution o f capital to such firm,
or to purchase stock in an affiliated corporation o f such firm ; or (b)
to or for any person who is or will become the holder o f stock of a
corporation which is a member of a national securities exchange to
enable such person to purchase stock in such corporation, or to pur
chase stock in an affiliated corporation of such corporation; provided
the lender as well as the borrower is a partner in such member firm
or a stockholder in such member corporation, or the lender is a firm
or corporation which is a member o f a national securities exchange
and the borrower is a partner in such firm or a stockholder in such
corporation;
(ii) M ake and maintain subordinated loans to another creditor for
capital purposes, provided:
(а) Either the lender or the borrower is a firm or corporation
which is a member o f a national securities exchange, the other party
to the loan is an affiliated corporation o f such member firm or cor
poration, and, in addition to the fact that an appropriate committee
o f the exchange is satisfied that the loan is not in contravention of
any rule o f the exchange, the loan has the approval of such com
mittee, or
(б ) The lender as well as the borrower is a member o f such ex
change, the loan has the approval o f an appropriate committee of
the exchange, and the committee, in addition to being satisfied that
the loan is not in contravention of any rule of the exchange, is satis
fied that the loan is outside the ordinary course o f the lender’s
business, and that, if the borrower’s firm or corporation or an affili
ated corporation o f such firm or corporation does any dealing in
securities for its own account, the loan is not for the purpose of
increasing the amount o f such dealing.
(iii) F or the purpose o f subdivisions (i) and (ii) of this subpara
graph, the term “ affiliated corporation” means a corporation all the
common stock o f which is owned directly or indirectly b y the member
firm or general partners and employees o f the firm, or by the member
corporation or holders o f voting stock and employees o f the corpora
tion and an appropriate committee o f the exchange has approved the
member firm’s or member corporation’s affiliation with such affiliated
corporation.
(3) Purchase any security from any customer who is a broker or
dealer, or sell any security to any such customer, provided the creditor
S e c . 2 2 0 .4
REGULATION T
11
acting in good faith purchases or sells the security for delivery, against
full payment o f the purchase price, as prom ptly as practicable in ac
cordance with the ordinary usage o f the trade;
(4) E ffect and finance, for any member o f a national securities ex
change who is registered and acts as an od d-lot dealer in securities on
the exchange, such member’s transactions as an od d-lot dealer in such
securities, or effect and finance, for any join t adventure in which the
creditor participates, any transactions in any securities o f an issue
with respect to which all participants, or all participants other than
the creditor, are registered and act on a national securities exchange
as odd-lot dealers;
(5) Effect transactions for and finance any join t adventure or group
in which the creditor participates and in which all participants are
dealers (whether such participants be acting join tly or severally), or
any member thereof or participant therein, for the purpose o f facili
tating the underwriting or distributing o f all or part o f an issue of
securities (i) not through the medium o f a national securities exchange,
or (ii) the distribution o f which has been approved by the appropriate
committee o f a national securities exchange;
(6) Effect for any customer the collection or exchange (other than
b y sale or purchase) o f securities deposited b y the customer specifically
for such purposes, and (subject to any other applicable provisions of
law) receive from or for any customer, and pay out or deliver to or for
any customer, any money or securities;
(7) Effect and carry for any customer transactions in foreign ex
change; and
(8) Extend and maintain credit to or for any customer without col
lateral or on any collateral whatever for any purpose other than pur
chasing or carrying or trading in securities.
(gr) Specialist's account.— In a special account designated as a
specialist’s account, a creditor may effect and finance, for any member
o f a national securities exchange who is registered and acts as a spe
cialist in securities on the exchange, such member’s transactions as a
specialist in such securities, or effect and finance, for any joint adven
ture in which the creditor participates, any transactions in any securi
ties of an issue with respect to which all participants, or all participants
other than the creditor, are registered and act on a national securities
exchange as specialists. Such specialist’s account shall be subject to
the same conditions to which it would be subject if it were a general
account except that if the specialist’s exchange, in addition to the other
requirements applicable to specialists, is designated by the Board of
Governors o f the Federal Reserve System as requiring reports suitable
REGULATION T
12
S e c s . 2 2 0 .4 - 2 2 0 . 5
for supplying current information regarding specialists’ use of credit
pursuant to this paragraph, the requirements of § 220.6(b) regard
ing join t adventures shall not apply to such account and the maximum
loan value o f a registered security in such account shall be as deter
mined by the creditor in good faith.
(h)
Special subscriptions account.— In a special subscriptions a c
count a creditor m ay effect and finance the acquisition o f a registered
security for a customer through the exercise of a right to acquire such
security which is evidenced by a warrant or certificate issued to stock
holders and expiring within 90 days o f issuance, and such special sub
scriptions account shall be subject to the same conditions to which it
would be subject if it were a general account except that:
(1) Each such acquisition shall be treated separately in the
account, and prior to initiating the transaction the creditor shall
obtain a deposit o f cash in the account such that the cash deposited
plus the maximum loan value of the securities so acquired equals
or exceeds the subscription price, giving effect to a maximum loan
value for the securities so acquired o f 75 percent o f their current
market value as determined by any reasonable m ethod;
(2) The creditor shall not permit any withdrawal o f cash or
securities from the account so long as there is a debit balance in
the account, except that when the debit connected with a given
acquisition o f securities in the account has become equal to or
less than the maximum loan value o f such securities as prescribed
for general accounts, such securities m ay be transferred to the gen
eral account together with any remaining portion o f such debit;
and
(3) N o security m ay be acquired in the account at any time
when the account contains any security which has been held
therein more than nine months without becom ing eligible for
transfer to the general account.
In order to facilitate the exercise of a right in accordance with the
provisions o f this paragraph, a creditor m ay permit the right to be
transferred from a general account to the special subscriptions ac
count without regard to any other requirement o f this part.
S E C T IO N 220.5— B O R R O W IN G B Y M E M B E R S , B R O K E R S ,
AN D DEALERS
(a)
General rule.— I t is unlawful for any creditor, directly or indi
rectly, to borrow in the ordinary course o f business as a broker or
dealer on any registered security (other than an exempted security)
except:
S e c s . 2 2 0 .5 - 2 2 0 . 6
REGULATION T
13
(1) from or through a member bank o f the Federal Reserve
System ; or
(2) from any nonmember bank which shall have filed with the
Board an agreement which is still in force and which is in the form
prescribed b y this part; or
(3) to the extent to which, under the provisions o f this part,
loans are permitted between members o f a national securities ex
change a n d /or brokers a n d /or dealers, or loans are permitted to
meet emergency needs.
(b) Agreements o f nonmember banks.— A n agreement filed pur
suant to section 8 (a ) o f the A ct (48 Stat. 888; 15 U.S.C. 7 8 h (a )) b y a
bank not a member o f the Federal Reserve System shall be sub
stantially in the form contained in Form F. R . T -2 if the bank has its
principal place o f business in a territory or insular possession o f the
United States, or if it has an office or agency in the United States
and its principal place o f business outside the United States. The
agreement filed by any other nonmember bank shall be in sub
stantially the form contained in Form F. R . T - l . A n y nonmember
bank which has executed any such agreement m ay terminate the
agreement if it obtains the written consent o f the Board. Blank forms
o f such agreements, inform ation regarding their filing or termination,
and information regarding the names of nonmember banks for which
such agreements are in force, m ay be obtained from any Federal R e
serve bank.
(c) Borrowing from other creditors.— A creditor m ay borrow
from another creditor in the ordinary course o f business as a broker or
dealer on any registered security to the extent and subject to the terms
upon which the latter m ay extend credit to him in accordance with the
provisions o f this part, and subject to any other applicable pro
visions o f law.
S E C T IO N 220.6— C E R T A I N T E C H N I C A L D E T A IL S
(a) Accounts o f partners.— In case a general account is the account
o f a partner o f the creditor, the creditor, in calculating the adjusted
debit balance o f such account and the maximum loan value o f the se
curities therein, shall disregard the partner’s financial relations with the
firm as reflected in his capital and ordinary drawing accounts.
(b ) Contribution to joint adventure.— In case a general account
is the account o f a join t adventure in which the creditor participates,
the adjusted debit balance o f the account shall include, in addition to
the items specified in § 2 20 .3(d ), any amount by which the creditor’s
contribution to the joint adventure exceeds the contribution which
he would have made if he had contributed merely in proportion to his
right to share in the profits o f the joint adventure.
14
REGULATION T
S e c . 2 2 0 .6
(c) Guaranteed accounts.— N o guarantee o f a customer’s account
shall be given any effect for purposes o f this part.
(d) Transfer o f accounts.— In the event o f the transfer o f a gen
eral account from one creditor to another, such account m ay be treated
for the purposes o f this part as if it had been maintained b y the trans
feree from the date o f its origin: Provided, That the transferee accepts
in good faith the signed statement of the transferor that no cash or
securities need be deposited in the account in connection with any
transaction that has been effected in the account or, in case he finds
that it is not practicable to obtain such a statement from the transferor,
accepts in good faith such a signed statement from the customer.
In the event o f the transfer o f a general account from one customer
to another, such account m ay be treated by the creditor for the pur
poses o f this part as if it had been maintained for the transferee from
the date o f its origin.
(e) Reorganizations.— A creditor m ay, without regard to the other
provisions o f this part, effect for a customer the exchange o f any regis
tered or exempted security in a general account for the purpose of
participating in a reorganization or recapitalization in which the
security is involved: Provided, That if an unregistered nonexempted
security is acquired in exchange, the creditor shall not, for a period
o f 60 days following such acquisition, permit the withdrawal o f such
security or the proceeds o f its sale from the customer’s account except
to the extent that such security or proceeds could be withdrawn if the
security were a registered security.
( /) Tim e o f receipt o f funds or securities.— F or the purposes o f
this part, a creditor m ay, at his option (1) treat the receipt in good
faith o f any check or draft drawn on a bank which in the ordinary
course o f business is payable on presentation, or any order on a savings
bank with passbook attached which is so payable, as receipt o f p a y
ment o f the amount o f such check, draft or order; (2) treat the ship
ment o f securities in good faith with sight draft attached as receipt of
paym ent o f the amount o f such sight d ra ft; and (3) in the case o f the
receipt in good faith o f written or telegraphic notice in connection with
a special omnibus account o f a customer not located in the same city
that a specified security or a check or draft has been dispatched to the
creditor, treat the receipt of such notice as receipt o f such security,
check or draft: Provided, however, That if the creditor receives notice
that such check, draft, order, or sight draft described in subparagraphs
(1 ), (2 ), or (3) o f this paragraph is not paid on the day o f presentation,
or if such security, check or draft described in subparagraph (3) o f this
paragraph is not received by the creditor within a reasonable time, the
creditor shall prom ptly take such action as he would have been required
S e c . 2 2 0 .6
REGULATION T
15
to take by the appropriate provisions o f this part if the provisions of
this paragraph had not been utilized.
(g ) Interest, service charges, etc.— (1) Interest on credit main
tained in a general account, communication charges with respect to
transactions in the account, shipping charges, premiums on securities
borrowed in connection with short sales or to effect delivery, dividends
or other distributions due on borrowed securities, and any service
charges (other than commissions) which the creditor m ay impose, may
be debited to the account in accordance with the usual practice and
without regard to the other provisions o f this part, but such items so
debited shall be taken into consideration in calculating the net credit or
net debit balance of the account.
(2)
A creditor may permit interest, dividends or other distributions
received by the creditor with respect to securities in a general account
to be withdrawn from the account only on condition that the adjusted
debit balance o f the account does not exceed the maximum loan value
o f the securities in the account after such withdrawal, or on condition
that (i) such withdrawal is made within 35 days after the day on
which, in accordance with the creditor’s usual practice, such interest,
dividends or other distributions are entered in the account, (ii) such
entry in the account has not served in the meantime to permit in the
account any transaction which could not otherwise have been effected
in accordance with this part, and (iii) any cash withdrawn does not
represent any arrearage on the security with respect to which it was
distributed, and the current market value of any securities withdrawn
does not exceed 10 percent o f the current market value o f the security
with respect to which they were distributed. Failure by a creditor to
obtain in a general account any cash or securities that are distributed
with respect to any security in the account shall, except to the extent
that withdrawal would be permitted under the preceding sentence, be
deemed to be a transaction in the account which occurs on the day on
which the distribution is payable and which requires the creditor to
obtain in accordance with § 2 2 0 .3 (6 ) a deposit of cash or maxi
mum loan value o f securities at least as great as that o f the distribu
tion.
(h ) Borrowing and lending securities.— W ithout regard to the
other provisions o f this part, a creditor (1) m ay make a bona fide
deposit o f cash in order to borrow securities (whether registered or
unregistered) for the purpose o f making delivery o f such securities in
the case o f short sales, failure to receive securities he is required to
deliver, or other similar cases, and (2) m ay lend securities for such
purpose against such a deposit.
(i) Credit for clearance of securities.— The extension or mainte
nance o f any credit which is maintained for only a fraction o f a day
REGULATION T
16
S e c s . 2 2 0 .6 - 2 2 0 . 7
(that is, for only part o f the time between the beginning o f business
and midnight on the same d ay) shall be disregarded for the purposes
of this part, if it is incidental to the clearance o f transactions in
securities directly between members or through an agency organized
or em ployed b y the members o f a national securities exchange for the
purpose o f effecting such clearance.
(j) Foreign currency.— I f foreign currency is capable o f being con
verted without restriction into United States currency, a creditor act
ing in good faith m ay treat any such foreign currency in an account as
a credit to the account in an amount determined in accordance with
customary practice.
(fc) Innocent mistakes.— I f any failure to com ply with this part
results from a mistake made in good faith in executing a transaction,
recording, determining, or calculating any loan, balance, market price
or loan value, or other similar matter, the creditor shall not be deemed
guilty o f a violation of this part if prom ptly after the discovery of the
mistake he takes whatever action m ay be practicable in the circum
stances to remedy the mistake.
S E C T IO N 220.7— M IS C E L L A N E O U S P R O V IS IO N S
(а) Arranging for loans by others.— A creditor m ay arrange for
the extension or maintenance o f credit to or for any customer o f such
creditor by any person upon the same terms and conditions as those
upon which the creditor, under the provisions o f this part, m ay himself
extend or maintain such credit to such customer, but only upon such
terms and conditions, except that this limitation shall n ot apply with
respect to the arranging b y a creditor for a bank subject to Part 221 of
this chapter (Regulation U ) to extend or maintain credit on registered
securities or exempted securities.
(б ) Maintenance o f credit.— E xcept as otherwise specifically for
bidden by this part, any credit initially extended without violation o f
this part m ay be maintained regardless o f (1) reductions in the cus
tom er’s equity resulting from changes in market prices, (2) the fact
that any security in an account ceases to be registered or exempted,
and (3) any change in the maximum loan values or margin require
ments prescribed b y the Board under this part. In maintaining any
such credit, the creditor m ay accept or retain for his own protection
additional collateral o f any description, including unregistered securi
ties.
(c)
Declaration as to purpose o f loan.— E very extension o f credit
on a registered security (other than an exempted security) shall be
deemed to be for the purpose o f purchasing or carrying or trading in
securities, unless the customer shall file with the creditor a written
declaration signed by the customer which shall state the use to be made
S e c . 2 2 0 .7
REGULATION T
17
o f such credit and which shall state specifically that such credit is
neither for the purpose o f purchasing or carrying or trading in securi
ties nor for the purpose o f evading or circumventing the provisions of
this part. In connection with any extension o f credit, a creditor may
rely upon such a written declaration unless he knows the statement to
be false or has inform ation which would put a prudent man upon in
quiry and if investigated with reasonable diligence would lead to the
discovery o f the falsity o f the statement.
(d) Reports.— E very creditor shall make such reports as the Board
m ay require to enable the Board to perform the functions conferred
upon it by the A ct.
(e) Additional requirements by exchanges and creditors.— N oth
ing in this part shall (1) prevent any exchange from adopting and
enforcing any rule or regulation further restricting the time or manner
in which its members must obtain initial or additional margin in
customers’ accounts because o f transactions effected in such accounts,
or requiring such members to secure or maintain higher margins, or
further restricting the amount of credit which m ay be extended or
maintained b y them, or (2) m odify or restrict the right o f any creditor
to require additional security for the maintenance o f any credit, to
refuse to extend credit, or to sell any securities or property held as
collateral for any loan or credit extended by him.
(Section 220.8, Supplement, containing maximum loan values, margin required
for short sales and retention requirements, which are changed from time to time,
is printed separately.)
APPENDIX
There are printed below certain provisions of the Securities Exchange
A ct of 1934 (U.S.C., Title 15, sec. 78) which are pertinent to the
subject matter o f 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 o f another person acting as
broker, or to make use of the facilities o f an exchange for trans
actions thereon without payment of a commission or fee or with
the payment o f 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 busi
ness o f effecting transactions in securities for the account o f others,
but does not include a bank.
(5) The term “ dealer” means any person engaged in the busi
ness 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 organ
ized under the laws o f 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 o f the United States, a substantial portion o f the
business o f which consists o f receiving deposits or exercising
fiduciary powers similar to those permitted to national banks
under section 11 (k) o f the Federal Reserve A ct, as amended, and
which is supervised and examined b y State or Federal authority
having supervision over banks, and which is not operated for the
purpose of evading the provisions o f this title, and (D ) a receiver,
conservator, or other liquidating agent o f any institution or firm
included in clauses (A ), (B ), or (C ) o f this paragraph.
* * * * *
(9) The term “ person” means an individual, a corporation, a
partnership, an association, a joint-stock com pany, a business
trust, or an unincorporated organization.
(10) The term “ security” means any note, stock, treasury stock,
bond, debenture, certificate o f interest or participation in any
profit-sharing agreement or in any oil, gas, or other mineral
18
REGULATION T
19
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 com m only known as a “ security” ; or any
certificate o f 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 o f exchange, or banker’s acceptance which has
a maturity at the time of issuance o f not exceeding nine months,
exclusive o f days o f grace, or any renewal thereof the maturity
of which is likewise limited.
* * * * *
(12) The term “ exempted security” or “ exempted securities”
shall include securities which are direct obligations of or obliga
tions 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 ap
propriate in the public interest or for the protection o f investors;
securities which are direct obligations o f 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 (which may include,
among others, unregistered securities, the market in which is pre
dominantly intrastate) as the Commission m ay, by such rules and
regulations as it deems necessary or appropriate in the public in
terest or for the protection of investors, either unconditionally or
upon specified terms and conditions or for stated periods, exempt
from the operation o f any one or more provisions o f this title which
by their terms do not apply to an “ exempted security” or to “ ex
empted securities.”
(13) The terms “ buy” and “ purchase” each include any con
tract to buy, purchase, or otherwise acquire.
(14) The terms “ sale” and “ sell” each include any contract to
sell or otherwise dispose of.
* * * * *
Sec. 3. (b) The Commission and the B oard of Governors of
the Federal Reserve System, 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.
REGULATION T
Sec. 6. (a) A ny exchange m ay be registered with the Commis
sion as a national securities exchange under the terms and con
ditions hereinafter provided in this section, by filing a registration
statement in such form as the Commission m ay prescribe, con
taining the agreements, setting forth the inform ation, and accom
panied by the documents, below specified:
(1) An agreement (which shall not be construed as a waiver of
any constitutional right or any right to contest the validity of any
rule or regulation) to com ply, and to enforce so far as is within its
powers compliance by its members, with the provisions o f this
title, and any amendment thereto and any rule or regulation made
or to be made thereunder; * * *
(b ) N o registration shall be granted or remain in force unless
the rules of the exchange include provision for the expulsion, sus
pension, or disciplining of a member for conduct or proceeding
inconsistent with just and equitable principles o f trade, and de
clare that the willful violation o f any provisions of this title or any
rule or regulation thereunder shall be considered conduct or p ro
ceeding inconsistent with just and equitable principles o f trade.
(c) N othing in this title shall be construed to prevent any ex
change from adopting and enforcing any rule not inconsistent with
this title and the rules and regulations thereunder and the ap
plicable laws o f the State in which it is located.
M A R G I N R E Q U IR E M E N T S
Sec. 7. (a) For the purpose of preventing the excessive use of
credit for the purchase or carrying o f securities, the Board of
Governors o f the Federal Reserve System 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 m ay be initially extended and subsequently maintained
on any security (other than an exempted security) registered on a
national securities exchange. F or the initial extension o f credit,
such rules and regulations shall be based upon the following stand
ard: An amount not greater than whichever is the higher of—
(1) 55 per centum o f the current market price o f the se
curity, or
(2) 100 per centum of the lowest market price of the se
curity during the preceding thirty-six calendar months, but
not more than 75 per centum o f the current market price.
Such rules and regulations m ay make appropriate provision with
respect to the carrying of undermargined accounts for limited
periods and under specified conditions; the withdrawal o f funds or
securities; the substitution or additional purchases o f securities;
REGULATION T
21
the transfer o f 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 ap p ly ; the bases and the methods to be
used in calculating loans, and margins and market prices; and
similar administrative adjustments and details. F or the purposes
o f paragraph (2) o f 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 o f subsection (a) o f this
section, the B oard o f Governors o f the Federal Reserve System,
may, from time to time, with respect to all or specified securities
or transactions, or classes o f securities, or classes o f transactions,
by such rules and regulations (1) prescribe such lower margin
requirements for the initial extension or maintenance o f credit as
it deems necessary or appropriate for the accom m odation of
commerce and industry, having due regard to the general credit
situation o f the country, and (2) prescribe such higher margin
requirements for the initial extension or maintenance o f credit
as it m ay deem necessary or appropriate to prevent the excessive
use o f credit to finance transactions in securities.
(c) It shall be unlawful for any member o f a national securities
exchange or any broker or dealer who transacts a business in
securities through the medium o f any such member, directly or
indirectly to extend or maintain credit or arrange for the exten
sion or maintenance o f credit to or for any customer—
(1) On any security (other than an exempted security) regis
tered on a national securities exchange, in contravention o f the
rules and regulations which the Board o f Governors of the Federal
Reserve System shall prescribe under subsections (a) and (b) of
this section.
(2) W ithout collateral or on any collateral other than exempted
securities a n d /or securities registered upon a national securities
exchange, except in accordance with such rules and regulations as
the Board of Governors of the Federal Reserve System m ay pre
scribe (A ) to permit under specified conditions and for a limited
period any such member, broker, or dealer to maintain a credit
initially extended in conform ity with the rules and regulations of
the Board o f Governors o f the Federal Reserve System, and (B )
to permit the extension or maintenance o f credit in cases where
the extension or maintenance o f credit is not for the purpose of
purchasing or carrying securities or o f evading or circumventing
the provisions o f paragraph (1) o f this subsection.
REGULATION T
(d)
It shall be unlawful for any person not subject to subsec
tion (c) to extend or maintain credit or to arrange for the exten
sion or maintenance o f credit for the purpose o f purchasing or
carrying any security registered on a national securities exchange,
in contravention o f such rules and regulations as the Board of
Governors o f the Federal Reserve System shall prescribe to pre
vent the excessive use o f credit for the purchasing or carrying of
or trading in securities in circumvention o f the other provisions
of this section. Such rules and regulations m ay impose upon all
loans made for the purpose o f purchasing or carrying securities
registered on national securities exchanges limitations similar to
those imposed upon members, brokers, or dealers by subsection
(c) o f 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 o f a national
securities exchange, (D ) to a loan b y a bank on a security other
than an equity security, or (E ) to such other loans as the Board
of Governors o f the Federal Reserve System shall, by such rules
and regulations as it m ay deem necessary or appropriate in the
public interest or for the protection o f investors, exempt, either
unconditionally or upon specified terms and conditions or for
stated periods, from the operation o f this subsection and the rules
and regulations thereunder.
# • * * •
Sec. 8. It shall be unlawful for any member of a national securi
ties exchange, or any broker or dealer who transacts a business in
securities through the medium o f any such member, directly or
indirectly—
(a)
T o borrow in the ordinary course o f business as a broker or
dealer on any security (other than an exempted security) regis
tered on a national securities exchange except (1) from or through
a member bank o f the Federal Reserve System, (2) from any
nonmember bank which shall have filed with the Board o f G ov
ernors o f the Federal Reserve System an agreement, which is
still in force and which is in the form prescribed b y the Board,
undertaking to com ply with all provisions o f this A ct, the Fed
eral Reserve A ct, as amended, and the Banking A ct o f 1933,
which are applicable to member banks and which relate to the
use o f credit to finance transactions in securities, and with such
rules and regulations as may be prescribed pursuant to such
provisions o f law or for the purpose o f preventing evasions thereof,
REGULATION T
23
or (3) in accordance with such rules and regulations as the
Board of Governors of the Federal Reserve System m ay pre
scribe to permit loans between such members a n d /o r brokers
a n d /or dealers, or to permit loans to meet emergency needs.
A ny such agreement filed with the Board of Governors o f the
Federal Reserve System shall be subject to termination at any
time by order of the Board, after appropriate notice and oppor
tunity for hearing, because o f any failure by such bank to
com ply 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 o f sections 21 and 25 of this title shall
apply in the case o f any such proceeding or order of the Board of
Governors o f the Federal Reserve System in the same manner
as such provisions apply in the case o f proceedings and orders
of the Commission.
(b) T o permit in the ordinary course o f business as a broker
his aggregate indebtedness to all other persons, including cus
tomers’ credit balances (but excluding indebtedness secured by
exempted securities), to exceed such percentage o f the net capital
(exclusive o f fixed assets and value o f exchange membership)
employed in the business, but not exceeding in any case 2,000 per
centum, as the Commission m ay by rules and regulations pre
scribe as necessary or appropriate in the public interest or for the
protection o f investors.
(c) In contravention o f such rules and regulations as the C om
mission shall prescribe for the protection o f investors to hypoth
ecate or arrange for the hypothecation o f any securities carried
for the account o f any customer under circumstances (1) that
will permit the commingling o f his securities without his written
consent with the securities o f any other customer, (2) that will
permit such securities to be commingled with the securities o f 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 o f the aggregate indebted
ness o f such customers in respect of such securities.
(d ) T o lend or arrange for the lending o f any securities carried
for the account o f any customer without the written consent of
such customer.
Sec. 11. (d) It shall be unlawful for a member o f a national
securities exchange who is both a dealer and a broker, or for any
person who both as a broker and a dealer transacts a business in
REGULATION T
securities through the medium of a member or otherwise, to effect
through the use o f any facility o f a national securities exchange
or of the mails or o f any means or instrumentality o f interstate
commerce, or otherwise in the case o f a member, (1) any trans
action in connection with which, directly or indirectly, he extends
or maintains or arranges for the extension or maintenance o f credit
to or for a customer on any security (other than an exempted
security) which was a part o f a new issue in the distribution of
which he participated as a member o f a selling syndicate or group
within six months prior to such transaction: Provided, T h a t credit
shall not be deemed extended by reason of a bona fide delayed
delivery o f any such security against full paym ent o f the entire
purchase price thereof upon such delivery within thirty-five days
after such purchase, * * *
*
* *
*
*
Sec. 17. (b ) A n y broker, dealer, or other person extending
credit who is subject to the rules and regulations prescribed b y the
Board o f Governors o f the Federal Reserve System pursuant to
this title shall make such reports to the Board as it m ay require
as necessary or appropriate to enable it to perform the functions
conferred upon it b y this title. I f 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 o f 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 o f such broker, dealer, or other person as
the B oard m ay deem necessary to enable it to obtain the required
information.
# * * * *
Sec. 23. (a) The Commission and the B oard o f Governors of
the Federal Reserve System shall each have power to make such
rules and regulations as m ay be necessary for the execution o f the
functions vested in them by this title, and m ay for such purpose
classify issuers, securities, exchanges, and other persons or m at
ters within their respective jurisdictions. N o provision of this
title imposing any liability shall apply to any act done or omitted
in good faith in conform ity with any rule or regulation o f the
Commission or the Board o f Governors o f the Federal Reserve
System, notwithstanding that such rule or regulation m ay, after
such act or omission, be amended or rescinded or be determined
b y judicial or other authority to be invalid for any reason.
* * * * *
Sec. 29. (a) A n y condition, stipulation, or provision binding any
person to waive com pliance with any provision o f this title or o f
REGULATION T
25
any rule or regulation thereunder, or o f any rule o f an exchange
required thereby shall be void.
(b) E very contract made in violation o f any provision o f this
title or o f any rule or regulation thereunder, and every contract
(including any contract for listing a security on an exchange)
heretofore or hereafter made the performance o f which involves
the violation of, or the continuance o f any relationship or practice
in violation of, any provision o f this title or any rule or regulation
thereunder, shall be void (1) as regards the rights o f any person
who, in violation of any such provision, rule, or regulation, shall
have made or engaged in the performance o f any such contract,
and (2) as regards the rights o f any person who, not being a party
to such contract, shall have acquired any right thereunder with
actual knowledge o f the facts by reason o f which the making or
performance o f such contract was in violation o f any such pro
vision, rule or regulation: * * *
(c) N othing in this title shall be construed (1) to affect the
validity o f any loan or extension o f credit (or any extension or
renewal thereof) made or o f any lien created prior or subsequent
to the enactment of this title, unless at the time o f the making of
such loan or extension of credit (or extension or renewal thereof)
or the creating o f such lien, the person making such loan or exten
sion o f credit (or extension or renewal thereof) or acquiring such
lien shall have actual knowledge o f facts b y reason o f which the
making o f such loan or extension o f credit (or extension or re
newal thereof) or the acquisition o f such lien is a violation o f the
provisions o f this title or any rule or regulation thereunder, or
(2) to afford a defense to the collection o f any debt or obligation
or the enforcement o f any lien b y any person who shall have
acquired such debt, obligation, or lien in good faith fo r value and
without actual knowledge o f the violation o f any provision o f this
title or any rule or regulation thereunder affecting the legality of
such debt, obligation, or lien.
Sec. 30. (a) It shall be unlawful for any broker or dealer,
directly or indirectly, to make use o f the mails or o f any means or
instrumentality o f interstate commerce for the purpose o f effecting
on an exchange not within or subject to the jurisdiction o f the
United States, any transaction in any security the issuer o f which
is a resident of, or is organized under the laws of, or has its prin
cipal place o f business in, a place within or subject to the juris
diction o f the United States, in contravention of such rules and
regulations as the Commission m ay prescribe as necessary or ap
propriate in the public interest or for the protection o f investors
or to prevent the evasion o f this title.
REGULATION T
(b )
The provisions o f this title or o f any rule or regulation
thereunder shall not apply to any person insofar as he transacts a
business in securities without the jurisdiction o f the United States,
unless he transacts such business in contravention o f such rules
and regulations as the Commission m ay prescribe as necessary or
appropriate to prevent the evasion o f this title.
*
*
•
*
*
Sec. 32. (a) A ny 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 o f which is required
under the terms o f this title, or any person who willfully and know
ingly makes, or causes to be made, any statement in any applica
tion, report, or document required to be filed under this title or any
rule or regulation thereunder or any undertaking contained in a
registration statement as provided in subsection (d ) of section 15
o f this title, 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 im posed; but no person shall be subject to imprisonment
under this section for the violation o f any rule or regulation if he
proves that he had no knowledge o f such rule or regulation.
SUPPLEMENT TO REGULATION T
S ection 2 2 0 .8 — SU P P L E M E N T
I ssu ed b y t h e
B oard o f G o v e r n o r s o f t h e
F ederal R eserve S y s t e m
E ffective June 15, 1959
(a) Maximum loan value for general accounts.— The maximum
loan value o f a registered security (other than an exempted security)
in a general account, subject to § 220.3, shall be 10 percent of its cur
rent market value.
(b ) Margin required for short sales in general accounts.— The
amount to be included in the adjusted debit balance of a general ac
count, pursuant to § 220.3(d) (3 ), as margin required for short sales
o f securities (other than exempted securities) shall be 90 percent of
the current market value o f each such security.
(c) Retention requirement for general accounts.— In the case of
a general account which would have an excess o f the adjusted debit
balance o f the account over the maximum loan value of the securities
in the account following a withdrawal o f cash or securities from the
account, the “ retention requirement” of a registered security (other
than an exempted security), pursuant to § 220.3(b) (2 ), shall be 50
percent o f its current market value.
Transactions in Restricted Accounts
Under A m ended W ithdrawal Rules o f Regulation T
Amendments to Regulation T effective June 15, 1959 deal with
withdrawals o f collateral from a “ restricted account” , i.e., a general
account in which the adjusted debit balance exceeds the maximum
loan value o f the securities. In that connection, an inquiry has been
received regarding the application o f the amended regulation to a
purchase o f unregistered nonexempted securities in such a ‘ ‘ restricted
account” .
Unregistered nonexempted securities have no loan value under
the regulation, are not subject to the restrictions o f the withdrawal
rules, and are not referred to in those rules. Purchase o f an unregis
tered security without a deposit o f a sum equal to the cost would
amount to a withdrawal o f the cost o f the security.
This supersedes that portion o f the interpretation at p. 938 o f the
1949 Federal Reserve Bulletin dealing with a similar question.
The 1949 interpretation also dealt with two other points. One was
the treatment o f certain transactions as short sales. That portion o f
the interpretation was superseded by the June 15, 1959 amendments
to the regulation. The other point was that the “ good faith loan
valu e” specified fo r an exempted security means the amount which
the broker would customarily lend on the security, and that the figure
cannot be arbitrarily reduced merely for the purpose o f perm itting a
later substitution o f registered securities fo r exempted securities. That
principle continues to apply and is o f increased significance under
the amendments.
Interpretation by Board o f Governors
o f the Federal Reserve System
May 29, 1959
PRINTED IN N E W YORK
aSvyrt
Federal R
eserve
Ba n
k
of
N ew Y ork
N E W Y O R K 45. N.Y.
RECTOR
2-5700
June 4, 1959
To All Banks and Trust Companies
in the Second Federal Reserve District:
Enclosed is a copy of a pamphlet entitled "Questions and
Answers Illustrating Application of Regulation U."
These questions
and answers relate to the regulation as amended to June 15, 1959 >
and are printed in a size for keeping with the regulation.
A copy
of the revised Regulation U was sent to you with our Circular
No. 4746, dated June 3, 1959*
Additional copies of the pamphlet will be furnished upon
request.
Very truly yours,
R. B. WILTSE,
Vice President.
a/V7</C.
QUESTIONS AND ANSWERS ILLUSTRATING APPLICATION
OF
REGULATION U
LOANS BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING REGISTERED
STOCKS
Board of Governors
of the
Federal Reserve System
CONTENTS
General coverage of regulation ......................
2
Regulated l o a n ..................................... 3
Maximum loan value ..................................
9
Excepted l oa n s ..................................... 11
Making of regulated loans
.......................... 15
Withdrawals and substitutions of collateral
.........
20
Maintenance of a regulated l o a n .....................25
Transfer of l o a n s .................................. 25
Loans to over-the-counter d e a l e r s ...................28
Bank borrowing by brokers and dealers on
registered securities ............................ 29
QUESTIONS AND ANSWERS ILLUSTRATING APPLICATION OP
REGUIATION U
Regulation U, relating to "Loans By Baziks For the Pur
pose of Purchasing or Carrying Registered Stocks", Is issued
pursuant to section 7 of the Securities Exchange Act of 193^>
particularly subsection (d) of the section.
It applies to
all banks (whether or not members of the Federal Reserve System),
except banks which are members of a national securities ex
change and therefore subject to Regulation T.
The following Questions and Answers have been prepared
for the benefit and guidance of banks subject to the regula
tion and examiners concerned with determining compliance
with the regulation.
Of course, the Questions and Answers
cannot be expected to cover in detail all aspects of the
regulation.
Furthermore, in any given case the Answers to
particular Questions must necessarily depend on the specific
facts and circumstances Involved.
Therefore, the following
Questions and Answers, as indicated above, should be
regarded as general aids to a better understanding of the
principal features of the regulation, rather than an
exhaustive, detailed explanation of the application of Its
various provisions.
References to sections are to the sections of the
regulation as published in the Federal Register, 12 CFR 221,
except that "221." Is omitted at the beginning of each such
reference.
Thus, "section 3" refers to "section 221.3" In the
Federal Register and the Board's June 15, 1959 reprint of the
regulation.
2
GENERAL COVERAGE OF REGULATION:
(l)
QUESTION. - What type of loan is subject to the
provisions of Regulation U?
(Hereafter, such a loan will be
referred to as a "regulated loan".)
ANSWER. - (a) Any loan by a bank that meets both the
following tests [Sec. 1(a)]:
I. The loan is not excepted by section 2 of the
regulation and is for the purpose of purchasing or carrying
stocks registered on a national securities exchange.
(Such
a loan is sometimes referred to in these questions and
answers as
a
n.
"purpose loan".
)
The loan is secured directly or indirectly by any
stock, whether registered or unregistered.
(b) A loan is also subject to the regulation if it is
so secured and is for the purpose of purchasing or carrying
a "redeemable security" issued by an open-end investment
company (sometimes known as a "mutual fund") whose assets
customarily include registered stocks, whether or not the
"redeemable security" itself is registered, since a loan
for such purpose shall be deemed to be for the purpose of
purchasing or carrying registered stocks.
[Sec. 3(b)(2)]
(c) A loan can also be subject to the regulation,
regardless of whether it is secured by any stock, if it is
to a person subject to neither Regulation U nor to Regulation T,
who is engaged principally or as an important activity, in the
business of making loans for the purpose of purchasing or
3
carrying registered stocks.
Unless umistakably kept distinct
from financing by the borrower of purchasing or carrying of
registered stocks, such loans will be deemed to be for snch
a purpose and therefore subject to section 3(q) of the
regulation which requires that such loans be secured.
(d) A loan made on or after June 15, 1959 for the purchase
of a security other than a registered stock (principally
convertible bonds) which is convertible into a registered
stock becomes subject to the regulation at the time that
conversion takes place and the registered stock is substituted
as collateral for the loan.
At this time the loan is not
permitted to exceed the then maximum loan value of the
collateral, except that any reduction of the loan or deposit
of collateral to meet this requirement may be brought about
within 30 days from such date.
[Sec. 3(**) ]
REGULATED LOAN;
(2) QUESTION. - In general, when is a loan secured by stock?
ANSWER. - A loan is secured by stock when it is secured,
directly or indirectly, by some stock, whether registered or
unregistered, even though such stock be only a small portion
of the total collateral.
It is not possible for the same
borrower to have at the bank both "unsecured" and secured
purpose loans; all such indebtedness is considered as a unit,
together with related collateral.
This is because section 1(b)
of Regulation U states that the "entire indebtedness of axjy
k
borrower to any bank incurred at any time for the purpose of
purchasing or carrying stocks registered on a national
securities exchange shall be considered a single loan, and
all the collateral securing such indebtedness shall be con
sidered in determining whether or not the loan complies. • •
(3)
QUESTION. - Is there any kind of loan, not secured
by any stock, which can be subject to the regulation by reason
of the nature of the borrower?
ANSWER. -
Tes.
Such a loan is cue to a person not sub
ject to eithe:Regulation T or Regulation U, who is engaged
principally, or as one of the person's important activities,
in the business of making loans for the purpose of purchasing
or carrying stocks registered on a national securities
exchange.
Such loans are deemed to be for the purpose of
purchasing or carrying registered stocks unless the loan and
its purposes are unmistakably separated and disassociated
from any financing or refinancing for any such purpose*
Unless such a loan is so "separated and disassociated* or is
excepted by section 2 of the regulation, it is subject to the
regulation, regardless of whether or not it is secured by any
stock.
No such loan may be made after June 15, 1959 without
collateral} and it must be secured to the same extent as would
be required if it were secured by stock.
Such a loan, whether
made before or after June 15, 1959 is subject to all of the
other provisions of the regulation including provisions re
lating to withdrawal and substitution of collateral.
[Sec. 3(q)]
(4)
QUESTION. - In general, when is a loan for the pur
pose of purchasing or carrying stock registered on a national
securities exchange?
ANSWER. - In general, in determining whether a loan is
for the purpose of purchasing or carrying registered stocks,
the ultimate purpose of the loan cannot be defeated by any
temporary application of the funds.
However, with respect to
"carrying", under section 3(b)(1) a loan made to a borrower
when he has ovned registered stock free of any lien for a
continuous period of at least a year need not be treated as a
loan to "carry" that stock unless the loan is for the purpose
of reducing or retiring indebtedness incurred to purchase the
stock.
Also a loan need not be treated as for the purpose
of "carrying" registered stocks if the purpose of the loan
is to meet emergency expenses not reasonably foreseeable or
to meet recurring expenses the borrower has customarily met
by temporary borrowing.
These are not the only Instances in
which loans need not be treated as for the purpose of "carry
ing" registered stock which the borrower owns, but they are
the major ones.
As noted in the Answer to Question 1, a loan for the
purpose of purchasing or carrying a "redeemable security"
6
of an open-end investment company whose assets customarily
include registered stocks is considered to be for the purpose
of purchasing or carrying a registered stock.
[Sec. 1(a)j
sec. 3(b)(2)]
(5)
QUESTION. - When would a loan be secured "indirectly"
by any stock?
ANSWER. - An answer necessarily must depend upon the
facts and circumstances of each case that arises.
For
example, it has been held that a purpose loan is subject to
the regulation as one secured by stock where, although the
pledge of the stock was delayed, both the bank and the
borrower contemplated that the loan would be so secured.
In determining whether a loan is "indirectly* secured,
it should be borne in mind that the reason the Board has thus
far refrallied (except to the limited extent covered in
section 3(q)) from regulating loans not secured by stock has
been to simplify operations under the regulation.
This
objective of simplifying operations does not apply to loans
in which arrangements are made to retain the substance of
stock collateral while sacrificing only the form.
As a related point it may be noted, as shown in the
Answer to Question 2, that any collateral securing any portion
of a borrower's purpose loan at a bank automatically secured
all such indebtedness of the borrower at the bank.
Hence, it
7
is not possible for a borrower to have both "unsecured" and
secured purpose loans at the bank.
(6) QUESTION. -
What is included within the term "stock"
as used in the regulation?
ANSWER. -
The term "stock" includes any security connnonly
known as a stock, including preferred stock, any voting trust
certificate or other instrument representing such a security,
and any warrant or right to subscribe to or purchase such a
security.
[Sec. 3(1)]
It does not, under the present regula
tion, include any bond, including a bond convertible into
stock, or a bond carrying stock purchase warrants.
But, where
the immediate purpose is to obtain the stock, a loan to
purchase a bond convertible into, or carrying warrants to
acquire the stock, should be considered a loan to purchase the
stock.
See also section 3(r) regarding loans for the purchase
of convertible securities.
(7) QUESTION. -
How may one determine whether a
particular stock is registered on a national securities
exchange or whether a security is a "redeemable security"
of an open-end investment company?
ANSWER. -
The bank may rely upon any reasonably current
record of such stocks and securities published or specified
in a publication of the Board of Governors.
[Sec. 3(c)]
Such
a record is published by the Board from time to time in the
8
form of a "List of Stocks Registered on National Securities
Exchanges and c f Redeemable Securities of Certain Investment
t
Companies*.
Copies of the current list or Supplements
thereto may be obtained from the local Federal Reserve Bank*
Frequently, it is not possible to keep this list cc*pletely
current on newly organized mutual funds or new listings on
exchanges.
Sound practice would require that a bank take
account of such late developments of which it knows or has
reason to know.
(8)
QUESTION. - In determining whether a loan for the
purpose of purchasing or carrying a particular stock is now
a purpose loan, is the status of registration of the stock
at the present time or at the time of making the loan the
determining factor?
ANSWER. -
Whether a loan is a purpose loan at a
particular time depends on the status of the stock at that
time.
A loan initially made for the purpose of
purchasing or carrying a particular stock is a purpose
loan if that particular stock is now registered, and
this would be true even if the stock were not
registered at the time the loan was originally made.
A bank ordinarily is not required to reduce an out
standing secured loan or obtain additional collateral
when the stock becomes registered, but the indebtedness
must thereafter be treated as a regulated loan.
An
exception to this concerns the purchase of a convertible
security which is not a registered stock.
In this case,
the loan becomes regulated at the time any registered
stock obtained through conversion of the securities
originally purchase^ is substituted as collateral
for the loan.
If the loan would be undermargined at
this time, the borrower has
to
30 days within which either
reduce the loan or to deposit additional collateral
in order to bring the loan up to margin.
Conversely, if stock becomes unregistered, a loan
which had been made for the purpose of purchasing or
carrying that stock ceases to be a purpose loan.
MAXIMUM LOAN VALUE;
(9)
QUESTION. - What limit is placed on the amount of a
regulated loan?
ANSWER. - The maximum loan value of a stock is a percentage
of its market value, specified in the current Supplement to
the regulation, but varying from time to time as the Supplement
is amended.
The amount of the loan must not exceed the
maximum loan value of the collateral at the time the loan is
made.
[Sec. 1(a)]
The single exception to this occurs in
the case of convertible securities, in which case the maximum
loan value of 'the collateral is determined at the time
Regulation U becomes applicable, that is, at the time of the
conversion and the substitution as collateral of the registered
stocks obtained upon conversion.
[Sec. 3(r)]
10
(10) QUESTION. - What is the present maximum loan value
of collateral securing a regulated loan?
ANSWER. - (a) Except as noted in paragraph (b) of this
Answer, the maximum loan value of any stock, whether
registered or unregistered, at this time is 10 per cent of
its current market value as determined by any reasonable
method.
[Supplement to regulation, effective October 16, 1958]
In the case of mixed collateral (e.g., stocks and bonds),
stocks have the present maximum loan value just indicated,
i.e., 10 per cent, and bonds or other nonstock collateral have
loan value as determined by the bank in good faith.
(b)
[Sec. 1(a)]
However, if the loan is to enable the borrower to
exercise a stock subscription right which is evidenced by a
warrant or certificate issued to stockholders and expiring
within
90 days
of issuance, a maximum loan value of 75 per
cent of the current market value of the stock so acquired as
determined by any reasonable method is permissible, provided
the transaction is treated as indicated below in connection
with Question 9.
In no event could the loan exceed 100 per
cent of the subscription price, since a loan in excess of
that price would not be for the requisite purpose.
[Sec. 3(p)]
(11) QUESTION. - Does the regulation provide any special
or preferential maximum loan values for stocks in certain
circumstances?
11
ANSWER. - The only special or preferential maximum loan
value for stocks is described under Question 10 above, i.e.,
the 75 per cent maximum loan value in the case of a loan to
enable the borrower to exercise a stock subscription right
which is evidenced by a warrant or certificate issued to
stockholders and expiring within 90 days of issuance.
How
ever, the 75 per cent maximum loan value in such a case is
permissible only if (l) the transaction is handled by the bank
on a segregated basis; (2) the bank prohibits any withdrawal
or substitution of the stock used to make the loan until the
amount of the loan is reduced to an amount not exceeding the
regular maximum loan value specified in the current Supplement
to the regulation, at which time the loan need no longer be
segregated; and (3) there is no other subscription right loan
to the borrower which has been outstanding at the bank more
than nine months without being reduced to the amount indicated
in clause (2) above.
[Sec. 3(p)]
In particular, no preferential maximum loan value is
provided for a registered stock acquired under an officers'
or enployees' stock purchase plan.
However, the loan value
may be computed against its current market value as indicated
on the exchange where it is listed, rather than against the
borrower's cost if the latter is lower.
.EXCEPTED LOANS:
(12)
QUESTION. - What loans, even though they have the
characteristic of a regulated loan, are excepted from the
regulation?
12
ANSWER. - (a) Any loan to a bank or to a foreign banking
institution.
[Sec. 2(a)]
The term "bank" does not include a
bank which is a member of a national securities exchange and
therefore subject to Regulation T.
[Sec. 3(k)]
(b) Any loan made prior to July 16, 19U5 to any person
whose total indebtedness to the bank at the date of and
including such loan does not exceed $1,000.
[Sec. 2(b)]
The term "total indebtedness" means total indebtedness for
all purposes and is not restricted to total indebtedness for
the purpose of purchasing or carrying registered stocks or
"redeemable securities".
(c) Any loan to a dealer, or to two or more dealers, to
aid in the financing of the distribution of securities to
customers not through the medium of a national securities
exchange.
[Sec. 2(c)]
In general, this exception covers
the underwriting and distributing of new issues; it should
not be regarded as excepting, for example, a loan to finance
the ordinary activities of an over-the-counter dealer, nor the
disposition through salesmen of securities purchased on an
exchange.
(d) Any loan to a broker or dealer that is made in
exceptional circumstances in good faith to meet his emergency
needs.
[Sec. 2(d)]
The bank, however, should obtain and
preserve adequate evidence of the details in order to support
excepting the loan.
13
(e) Any loan to a broker or dealer secured by any securi
ties which, according to written notice received by the bank
from the broker or dealer pursuant to the rules of the Securi
ties and Exchange Commission concerning the hypothecation of
customers' securities, are securities carried for the account
of one or more customers, provided the bank accepts in good
faith from the borrower a signed statement that he is subject
to Regulation T or that all credit extended or maintained by
him for custoners complies with Regulation T.
fSec. 2(e)]
(f) Any temporary advance to finance the purchase or sale
of securities for promot delivery which is to be repaid in the
ordinary course of business upon completion of the transaction.
[Sec. 2(f)]
This exception is intended to facilitate the
financing of bona fide cash transactions such as, for example,
(1) the purchase of a security by a bank as agent for the
account of a customer who intends to make payment promptly
upon receipt of the security, or (2) an advance to a customer
who has sold his security pending delivery to and payment by
the buyer.
The exception does not apply to a temporary loan
which is to be repaid from the proceeds of a new regulated
loan.
(g) Any loan against securities in transit or
surrendered for transfer, which is payable in the ordinary
course of business upon completion of the transaction.
[Sec. 2(f)]
In general, this exception is designed to
cover the cashing of sight drafts with securities attached.
1*
(h) Any loan which is to be repaid on the calendar day
on which it is made.
[Sec. 2(h)]
This exception would cover
so-called "day1 loans but not "overnight" loans.
’
(i) A loan made cutside the U9 States of the United
States and the District of Columbia.
["Sec. 2(i)]
The
exception would apply, for example, to the usual loan by the
foreign branch office of an American bank.
(j) Any loan to a member of a national securities
exchange for the purpose of financing his or his customers’
bona fide arbitrage transactions in securities.
[Sec. 2(j)]
In general, arbitrage means (1) the purchase or sale of a
security in one market together with an off-setting sale or
purchase of the same security in a different market at as
nearly the same time as practicable for the purpose of taking
advantage of a difference in prices in the two markets (e.g.,
the purchase in London of 100 shares of stock of the X company
and the immediate sale of a like amount of the same security
in. New York); or (2) the purchase of a security which is,
without restriction other than the payment of money, exchange
able or convertible within a reasonable time into a second
security together with an off-setting sale at or about the
same time of such second security, for the purpose of taking
advantage of a disparity in the price of the two securities
(e.g., the purchase of a bond of X company and the immediate
sale of the stock into which the bond is convertible without
any restriction).
The purchase of issued securities and
15
sale of unissued securities which are to be issued to holders
of the issued security under a tentative plan of reorganiza
tion or merger which has not been finally approved by the
stockholders, the court, or other necessary authority, should
not be considered a bona fide arbitrage.
(k) Any loan to a member of a national securities exchange
for the purpose of financing such member's transactions as an
odd-lot dealer (including transactions as a combined odd-lot
dealer and specialist) in securities with respect to which he
is registered on such exchange as an odd-lot dealer.
The
separate function of the specialist on the NYSE, where the two
are separate, may be similarly financed under a "good faith"
loan value.
[Secs. 2(k), 3(o)]
MAKING OF REGULATED LOANS:
(13)
QUESTION. - If the maximum loan value of the collateral
securing an outstanding regulated loan exceeds the total amount
of the loan, may the bank make another regulated loan without
the deposit of additional collateral?
ANSWER. - Yes.
The bank may make an additional regulated
loan equal to the amount of the excess loan value of the
collateral.
This is permissible regardless of the cause of
the excess, whether it results from an increase in the market
value of the collateral, a decrease in the amount of the
original loan, or a subsequent increase by the Board in the
permissible maximum loan value.
16
(Hi) QUESTION. - May a bank make a new regulated loan
in
case the outstanding regulated loan has a deficiency in
collateral?
ANSWER. - Yes.
The new loan, however, must be secured
by additional collateral having a maximum loan value at least
equal to the amount of the new loan.
Thereafter both loans
must be considered a single loan for the purposes of substitutions
or withdrawals of collateral.
An increase of an existing loan
must be considered a new loan* except insofar as the increase
may be due solely to the addition of interest or service
charges, or of taxes on transactions in connection with the
loan.
(Sec. 3(d)]
See also Question 1(d) of these Questions
and Answers and section 3(r) of Regulation U relating to
conversion of convertible securities.
(lf>) QUESTION. - If a bank has outstanding a purpose loan
which is not a regulated loan because it is not secured
directly or indirectly by any stock, may the bank, without
regard to the status of the outstanding loan, make the same
customer another loan which is a regulated loan?
ANSWER. - Yes, but the outstanding loan thereupon
becomes a regulated loan and thereafter both loans must be
considered, by reason of their purpose, to be a single loan.
[Sec. 1(b)]
However, the bank need not obtain additional
collateral to cover the outstanding loan, even if the
17
combined single loan is now undermargined.
to Questions 16,
2k
[See also Answers
$.]
and 2
(16) QUESTION. - May a bank make a nonpurpose loan in
reliance on the collateral used to meet the requirements for a
regulated loan?
ANSWER. - In general, no.
In the case of any regulated loan,
the bank is required to identify all the collateral used to meet
the maxmum loan value limitation of the regulation, and only
the collateral so identified has loan value for the purpose of
the regulation and is subject to the restrictions of the
regulation applicable to collateral for a regulated loan.
For
any nonregulated indebtedness of the same borrower (other than
loans excepted by sections 2(d), (f), (g), or (h)), the bank
shall require in good faith as much collateral (if any) not
so identified as it would require if it did not hold the
regulated loan.
However, this does not require the bank to
waive or forego any lien.
It also does not apply to a loan
to meet emergency expenses not reasonably foreseeable, provided
the circumstances are suitably documented.
[Sec. 3(n)]
It should be noted that the nonregulated indebtedness
referred to here is necessarily a nonpurpose indebtedness, since
it is not possible for the same borrower to have at the same
bank both "unsecured" and secured purpose loans.
See
Answer to Question 2.
(17) QUESTION. - Does the regulation require that a
bank obtain a statement of purpose for every stock-secured
loan which is not a regulated loan?
18
ANSWER. - While there is no requirement in the present
regulation that such a statement be obtained, a bank should
do so in any case in which the bank's records do not other
wise indicate satisfactorily the actual purpose of the loan.
There is no need for a statement of purpose with respect to
a loan which the bank treats as if it were a regulated
loan.
A bank may rely upon a statement with respect to the
purpose of the loan, if it is (1) signed by the borrower,
(2) accepted by the bank in good faith and signed by an
officer as having been so accepted, and (3) if it merely
states what is not the purpose of the loan, it is supported
by a memorandum of the lending officer describing the
purpose of the loan.
[Sec. 3(a)]
Unless such a statement
ia on file, the bank should be able to demonstrate the
purpose .of a loan which is secured by stocks.
(18)
QUESTION. - Would the mere acceptance by a bank
of a nonpurpose statement protect the bank?
ANSWER. - No.
Under section 3(a) as amended effective
June 15, 1959, if a statement of the borrower merely states
what is not the purpose of the loan, it must be supported by
a memorandum or notation of the lending officer describing
the purpose of the loan.
In addition, no statement of the
borrower may be relied upon unless it is accepted "in
good faith" and signed by an officer of the bank as having
been so accepted.
A bank could not, of course, rely "in
good faith" upon a statement which it knew to be false
or if, in the circumstances, it had reason to question the
correctness or coupleteness of the statement.
The
requirement of "good faith" is of vital importance; and to
fulfill such requirement the bank must be alert to
circumstances surrounding the loan and the borrower.
Fbr
example, if the bank had reason to suspect that a loan was
obtained with the idea of purchasing unregistered stock or
bonds merely as a temporary expedient and shortly thereafter
selling the unregistered stock or bonds and purchasing
registered stocks, the loan should be considered to be
a purpose loan; and the bank, in such a case, would not
be justified in relying on the borrower's statement with
out full investigation.
Special vigilance would be
necessary also where, on more than one occasion, a borrower
substituted registered stock for other collateral securing
a loan.
In addition, a bank could not accept a statement
in "good faith" without obtaining a reliable and
satisfactory explanation where, for example, a loan is made
to a customer who is not a broker or dealer, but a broker
or dealer is to deliver registered stock to secure the loan
or is to receive the proceeds of the loan.
There usually
would be reasonable grounds for questioning reliance upon
a statement if an unsecured loan should become secured
by registered stock shortly after disbursement of the
20
loan.
In any case, "good faith" would require the exercise
of special diligence where the borrower is not personally
known to the bank or to the officer who processes the loan.
(19) QUESTION. - If a bank holds stock under a bona fide
trust agreement established by a borrower for the benefit of
a college, for exauple, and therefore does not rely upon such
stock in any way in making a purpose loan, does the purpose
loan become a regulated loan by virtue of the stock held
under the trust?
ANSWER. - No.
A loan need not be treated as collateralled
by securities which are held by the bank only in the capacity
of custodian, depositary or trustee, or under similar circum
stances, if the bank in good faith has not relied upon such
securities as collateral in the making or maintenance of the
particular loan.
[Sec. 3(f)]
WITHDRAWALS AND SUBSTITUTIONS OF COLLATERAL:
(20) QUESTION. - May a bank permit the substitution or
withdrawal of collateral securing a regulated loan which is
fully margined in accordance with the maximum loan value
specified in the current Supplement to the regulation?
ANSWER. - Yes, if the substitution or withdrawal would
not cause the maximum loan value of the remaining collateral
at such time to be less than the amount of the loan.
If the
withdrawal or substitution would result in a deficiency, then
it would be permitted only on the terms applicable to
21
withdrawals or substitutions in undermargined accounts, as
described in the Answer to Question 21.
(21)
[Sec. 1(c)]
QUESTION. - May a bank permit the substitution or
withdrawal of collateral securing a regulated loan which
is undermargined, i.e., which has insufficient collateral
to satisfy the maximum loan value specified in the current
Supplement to the regulation?
ANSWER. - Substitution or withdrawal, unless it results
from a purchase and sale executed on the same day, is per
missible in an undermargined account only if (1) the loan
would not exceed the maximum loan value of the collateral
after such withdrawal or substitution, or (2) the loan is
reduced by an amount at least equal to the "retention require
ment" of the collateral withdrawn minus the maximum loan
value of the collateral deposited.
[Sec. 1(c)]
The "retention requirement" of nonstock collateral is
the same as its maximum loan value, and the "retention re
quirement" of stock collateral is prescribed from time to
time in the Supplement to the regulation.
Effective June 15,
1959, the "retention requirement" of a stock, whether or not
registered on a national securities exchanpe, was set in
the Supplement at 50 per cent of market value.
For example, if $1,000 market value of stock X were
withdrawn from an undermargined account in a situation other
than a same-day-purchase-and-sale, and $1,000 market value
22
of stock Y were deposited, the loan must be reduced by an
amount determined as follows:
the retention requirement of
collateral withdrawn (i.e., £0 per cent of Si,000, or $5>00)
less the maximum loan value of the collateral deposited
(i.e., 10 per cent of $1,000, or $100) equals the required
reduction (i.e., $1*00).
must be reduced by $U00.
Thus, the loan in this example
Of course, if some smaller reduc
tion would reduce the loan to the maximum loan value of the
collateral, then the smaller reduction would be sufficient.
In the case of a substitution resulting from a pur
chase and sale occurring on the same day, the substitution
is permissible in an undermargined loan without additional
collateral or reduction in the loan if the excess of the
loan over the maximum loan value of the securities is not
thereby increased.
The bank must reasonably ascertain and
have evidence in its records that the purchase and sale
orders were both executed on the same day.
The controlling
events which must occur on the same day are the executions
of the purchase and sale orders, and not the bank’s receipt
or release of stock certificates.
For example, if $2,000
market value of stock A were sold in an undermargined loan,
and $2,000 market value of stock B were purchased in the
loan, both orders being executed on the same day, the sub
stitution could be effected in the account without any de
posit of additional collateral or any reduction in the loan.
23
(22) QUESTION. - How much collateral may a bank release
by reason of a reduction in the amount of a regulated loan
which is undermargined on the basis of the maximum loan value
specified in the current supplement to the regulation?
ANSWER. - A reduction in the amount of an undermargined
loan permits the bank to release collateral having a "retention
requirement" as large as the reduction in the loan. [Sec. 1(c)]
For example, under present retention requirements of
50 per cent for stock collateral, if an undermargined loan
were reduced by $1,000, stock collateral with a market value
of $2,000 could be withdrawn.
(23) QUESTION. - Are there any exceptions to the
provisions explained above regarding substitutions or with
drawals of collateral?
ANSWER. - (a) Yes, substitutions and withdrawals are
permitted, without regard to the above provisions, to enable
a borrower to participate in a reorganization.
[Sec. 3(g)]
In any such case the bank would normally be expected to
obtain as promptly as possible such other securities as are
to be issued in connection therewith.
(b)
Withdrawals or substitutions are prohibited in the
case of subscription right loans as indicated in the Answer
to Question 11 above, except as may be permissible under
section 3(g)*
2k
(2h) QUESTION. - If a bank has outstanding a loan
either secured or unsecured, the purpose of which is not
known, and then, subsequently, makes a regulated loan to
the same borrower, may the bank permit withdrawals or
substitutions of collateral to either loan without ascertain
ing the purpose of the first loan?
ANSWER. - Not if the maximum loan value of the remaining
collateral is, or would thereupon become, less than the
combined indebtedness.
Since all the borrower's purpose
loans at the bank must be considered a single loan, and
all collateral therefor must be considered as a unit, the
bank cannot exclude from this total indebtedness a previously
outstanding loan unless the bank has satisfied itself that
the loan is not a purpose loan.
See Questions 17 and 18
regarding the purpose of a loan.
(25)
QUESTION. - Are the provisions of Regulation U
applicable to the withdrawal or substitution of collateral to
a loan that is not for the purpose of purchasing or carrying
a registered stock?
ANSWER. - No.
Under so-called "overlap" agreements
which are frequently used by banks, collateral which secures
one loan of a borrower at a bank also secures all other
indebtedness of the borrower to the bank.
As a result of
such "overlap" agreements, collateral securing a nonpurpose
loan may also secure a purpose loan.
Before the June 15, 1959
25
amendment to section 3(n), collateral which secured a non
purpose loan might in that way become subject to limitations
on withdrawals and substitutions.
Since that date, however,
the limitations apply only to collateral that has been used
to meet the requirements of the regulation, rather than to
all collateral available to secure a purpose loan.
MAINTENANCE OF A REGULATED LOAN:
(26) QUESTION. - If there is a decline in the market
value of the collateral securing a regulated loan or a
decrease in the maximum loan value prescribed by the Board
which causes the maximum loan value of the collateral to be
less than the amount of the loan, is the bank required by
the regulation to demand additional collateral equal to the
deficiency or to reauire liquidation or payment of the loan?
ANSWER. - No.
The regulation does not require the bank
to obtain additional collateral nor to liquidate or reduce
any regulated loan by reason of such a decline or decrease.
But see section 3(r) concerning loans for the purchase of
convertible securities.
TRANSFER OF LOANS:
(27) QUESTION. - What procedure should a bank follow in
accepting the transfer of a loan from another bank, as per
mitted by section 3(e)?
ANSWER. - The transferee bai^k should pay off the
transferor bank against the receipt of the collateral.
loan to enable a borrower to reduce or retire existing
A
26
indebtedness at another bank or to replace funds which the
borrower has used for such purpose does not constitute a
transfer of the loan within the meaning of section 3(e).
v
(28) QUESTION. - May a bank accept transfer of a
regulated loan from another bank if the bank knows or has
reason to know that the loan when made failed to comply with
the regulation?
ANSWER. - No.
(29) QUESTION. - If a regulated loan is fully margined
must there be compliance with section 3(e) in connection
with the transfer of the loan to another bank?
ANSWER. - No.
Since the transferee bank could make the
loan Initially because the maximum loan value of the
securities equals or exceeds the loan, the transferee bank
may treat the loan as a new loan and need not rely on
section 3(e) permitting transfers.
(30) QUESTION. - In accepting the transfer of a loan
from another bank, how may the transferee bank determine
whether there is any change in the amount of the loan or in
the collateral thereto?
ANSWER. - If the transferred loan is a regulated loan,
it must be accompanied by all the collateral used to meet
the collateral requirements of the regulation, i.e., all the
collateral required to be identified under section 3(n).
In the case of a transfer of a portion of such a loan, the
transferred portion should be accompanied by its proper
27
proportion of the entire collateral so that the ratio of loan
value of collateral to indebtedness is the same with the
transferred portion of the indebtedness and transferred por
tion of the collateral as with the aggregate indebtedness and
aggregate collateral.
(31) QUESTION. - May a bank rely upon a borrower's
statement relative to the essential facts concerning the
transfer of a loan?
ANSWER. - The regulation does not prescribe any specific
method for determining such facts.
A bank should exercise
good faith, including reasonable diligence, in ascertaining
the relevant facts.
A signed statement of the borrower may be
relied upon if accepted in good faith.
See the last sentence
of section 3(a) regarding acceptance of a statement in good
faith.
(32) QUESTION. - May a bank accept the transfer of a
loan of a borrower frai another lender which is not a bank
(e.g., a broker or dealer) without following the requirements
of the regulation as to the making of the loan?
ANSWER. -
No.
Although the regulation originally
permitted such a transfer, this permission was eliminated
shortly after the regulation was issued.
[Sec* 3(e)]
(33) QUESTION. - After a transfer of a regulated loan
frcai one bank to another, may the bank permit withdrawals and
substitutions of collateral?
28
ANSWER. - Tes.
The bank accepting the transfer of a
regulated loan may permit withdrawals and substitutions of
collateral on the same basis as if it had been the original
maker of the loan.
If the transferee bank already has a
regulated loan to the same borrower or a loan to him which
has not been a regulated loan solely because it has not been
secured by any stock, the transferred loan and the outstand
ing loan must be combined for the purpose of the regulation
in determining permissible withdrawals or substitutions of
collateral.
LOANS TO OVER-THE-COUNTER DEALERS:
(32)
QUESTION. - Does the regulation apply to stock-secured
loans made to an over-the-counter dealer whose business consists
chiefly of purchasing or carrying unregistered securities but
who also, as a regular part of his business, purchases or
carries registered stocks?
ANSWER. - Theoretically, if the different parts of the
dealer's business are kept separate so that it can be demonstrated
that a particular loan is not for the purpose of purchasing
or carrying any registered stocks, such loan, of course, would
not be subject to the regulation.
In practice, however, it would be difficult to effect any
such separation.
In the absence of such separation, any
loan to replenish the working capital of such over-the-counter
dealer cannot be said to be a nonpurpose loan and should,
therefore, be considered a regulated loan.
29
BANK BORROWING BY BROKERS AND DEALERS ON REGISTERED SECURITIES:
Under the provisions of section 8(a) of the Securities
Exchange Act cf 193U it is unlawful for any member of a national
securities exchange, or any broker or dealer 1*10 transacts a
business in securities through the median 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) from any bank which is not
a member of the Federal Reserve System unless such nonmember
bank shall have filed with the Board of Governors of the
Federal Reserve System an agreement (on Federal Reserve Board
Form T-l or T-2) undertaking to comply with all the provisions
of the Securities Exchange Act of 193li, 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
rule8 and regulations as may be prescribed pursuant to such
provisions of law.
In view of the foregoing, a nonmember bank should not
make loans to any brokers or dealers in the circumstances
specified in the Act unless such bank has filed an agreement
on Federal Reserve Board Form T-l or T-2 with the Board of
Governors.
@FedFRASER