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FED ER AL RESERVE BANK
O F NEW YORK
("Circular No.
6 1 2 1 ~1
L February 15, 1968 J
REGULATION T
As Amended Effective March 11, 1968
To All Banks, Members of National Securities Exchanges,
and Others Interested, in the Second Federal Reserve District:
Enclosed is a copy of Regulation T, as amended effective March 11, 1968, of the
Board of Governors of the Federal Reserve System, together with the Supplement
thereto, effective the same date. The regulation governs the extension of credit by
brokers, dealers, and members of national securities exchanges in securities transac
tions. The supplement sets forth the margin requirements on transactions in securities
covered by the regulation. The changes in the amended regulation and in the supple
ment were described in a statement issued by the Board of Governors on February 1.
The text of that statement was printed in our Circular No. 6108, and changes in the
effective dates of the margin requirements were set forth in our Circular No. 6110.
Additional copies of the enclosures will be furnished upon request.
A
lfred
H
ayes,
President.
SUPPLEMENT TO REGULATION T
Section 2 2 0 .8 — SUPPLEMENT
I s s u e d b y t h e B o a r d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s te m
Effective March 11, 1968
(a) Maximum loan value for general accounts.— The maximum
loan value of securities in a general account subject to § 220.3
shall be:
( 1) of a registered non-equity security held in the account
on March 11, 1968 and continuously thereafter and of a regis
tered equity security (except as provided in § 220.3(c) and
§ 22 0.8 (6 ), 30 per cent of the current market value of such
securities.
(2) of an exempted security held in the account on March
11, 1968, and continuously thereafter the maximum loan value
of the security as determined by the creditor in good faith.
(b) Maximum loan value for special convertible security ac
count.— The maximum loan value of a registered equity security
eligible for a special convertible security account pursuant to
§ 220.4 ( ;) shall be 50 per cent of the current market value of
the security.
(c) Margin required for short sales.— The amount to be in
cluded in the adjusted debit balance of a general account, pur
suant to § 2 2 0 .3 (d )(3 ), special bond account pursuant to
§ 2 2 0 .4 (0 , or special convertible security account subject to
§ 220.4 ( j ) as margin required for short sales of securities (other
than exempted securities) shall be 70 per cent of the current
market value of each such security.
(d) Retention requirement.— (1) In the case of a general ac
count which would have an excess of the adjusted debit balance
of the account over the maximum loan value of the securities
in the account following a withdrawal of cash or securities from
the account, pursuant to § 220.3(6) ( 2), the “ retention require
ment” of an exempted security held in the account on March
11, 1968, and continuously thereafter shall be equal to its maxi
mum loan value as determined by the creditor in good faith,
and the “ retention requirement” of a registered non-equity
security held in the account on March 11,1968, and continuously
REGULATION T SUPPLEMENT
thereafter and of a registered equity security shall be 70 per
cent of the current market value of the security.
(2) In the case of a special convertible security account sub
ject to § 220.4 O’) which would have an excess of the adjusted
debit balance of the account over the maximum loan value of
the securities in the account following a withdrawal of cash or
securities from the account the retention requirement of a secur
ity having loan value in the account shall be 70 per cent of the
current market value of the security.
(3) For the purpose of effecting a transfer from a general
account to a special convertible security account subject to
§ 220.4O’) , the retention requirement of a security described in
§ 220.4 O ) shall be 70 per cent of it current market value.
(e) Securities having no loan value in general account.— No
securities other than an exempted security or a registered non
equity security held in the account on March 11, 1968, and con
tinuously thereafter, and a registered equity security shall have
any loan value in a general account except that a registered
equity security eligible for the special convertible security ac
count pursuant to § 220.4 O’) shall have loan value only if held
in the account on March 11, 1968, and continuously thereafter.
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
CREDIT BY BROKERS, DEALERS, AND
MEMBERS OF NATIONAL SECURITIES
EXCHANGES
T
REGULATION T
(12 CFR 220)
As Amended effective March 11, 1968
INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed to a
national securities exchange of which the person making the in
quiry is a member or the facilities of 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 of an exchange desires
information as to any such question, he should make inquiry of
the Federal Reserve Bank of the district in which the exchange is
located.
CONTENTS
Page
Sec. 220.1.
Scope
Sec. 220.2.
D efinitions
..........................................................................................
1
Sec. 220.3.
G eneral A ccounts ..........................................................................
(a) Contents of general accou n t........................................
( b) General rule .......................................................................
(c) Maximum loan value and current market value . .
( d ) Adjusted debit b a lan ce...................................................
(e) Liquidation in lieu of deposit......................................
( /) Extension of time ...........................................................
( g) Transactions on given d a y ............................................
(h) Unissued securities .........................................................
2
2
3
4
5
6
6
7
7
Sec. 220.4.
Special A ccounts .............................................................................
(a) General rule .......................................................................
(b) Special omnibus account ..............................................
(c) Special cash account.......................................................
(d) Special arbitrage account..............................................
(e) Special commodity account ..........................................
( /) Special miscellaneous account......................................
( g) Specialist’s accou n t.........................................................
(/>) Special subscriptions accou n t......................................
(i) Special bond account .....................................................
(j ) Special convertible security account.........................
8
8
9
9
12
12
12
14
14
16
16
Sec. 220.5.
B orrowing by M embers, Brokers, and D e a l e r s ..................
(a) General rule .......................................................................
( b ) Agreements of nonmember b a n k s ...............................
(c) Borrowing from other creditors.................................
16
16
17
17
Sec. 220.6.
Certain T echnical D etails .......................................................
(a) Accounts of partners.......................................................
(b) Contribution to joint adventure.................................
(r) Guaranteed accounts .......................................................
(d) Transfer of accounts .....................................................
(c) Reorganizations ................................................................
( /) Time of receipt of funds or securities....................
((f) Interest, service charges, etc.........................................
(//) Borrowing and lending securities .............................
(t) Credit for clearance of securities .............................
( j ) Foreign curren cy..............................................................
( k ) Innocent mistakes ...........................................................
17
17
18
18
18
18
19
19
20
20
20
21
S ec. 220.7.
M iscellaneous Provisions ...........................................................
(a) Arranging for loans by o th e r s ...................................
(b) Maintenance of c r e d it.....................................................
(r) Declaration as to purpose of l o a n .............................
(d) Reports .................................................................................
( e ) Additional requirements by exchanges and credi
tors ....................................................................................
( /) Acting as a g e n t ................................................................
21
21
21
21
22
A ppendix
op
Part ......................................................................................
.........................................................................................................................
1
22
22
23
REGULATION T
(12 CFR 220)
As Amended effective March 11, 1968
CREDIT BY BROKERS, DEALERS, AND MEMBERS
OF NATIONAL SECURITIES EXCHANGES *
SECTION 220.1— SCOPE OF PART
This part is issued by the Board of Governors of the Federal
Reserve System (hereinafter called the “ Board” ) pursuant to the
Securities Exchange Act of 1934 (called the “Act” in this
Part),** particularly sections 7 and 8 (a) thereof (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 of any such member.
SECTION 220.2—DEFINITIONS
For the purposes of this part, unless the context otherwise
requires:
(a) The terms “ person” , “ member” , “ broker” , “ dealer” , “ buy” ,
“purchase” , “sale” , “ sell” , “ security” , “equity security” , and “bank”
have the meanings given them in section (3a) of the Act
(15 U.S.C. 7 8 c (a )).
(b) The term “ creditor” means any member of a national
securities exchange or any broker or dealer who transacts a
business in securities through the medium of any such member.
(c) The term “customer” includes any person, or any group
of persons acting jointly, ( 1) to or for whom a creditor is
extending or maintaining any credit, or ( 2 ) who, in accordance
with the ordinary usage of the trade, would be considered a
customer of the creditor. It includes, in case the creditor is a firm,
any partner in the firm who would be considered a customer
of the firm if he were not a partner, and includes any joint
adventure in which a creditor participates and which would be
considered a customer of 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
* This text corresponds to the Code of Fedei*al Regulations, Title 12,
Chapter II, Part 220, cited as 12 CFR 220. The words “this Part,” as used
herein, mean Regulation T.
** See Appendix.
1
2
REGULATION T
Secs. 220.2-220.3
consequence of its having unlisted trading privileges on a na
tional securities exchange is deemed, under the provisions of
section 12(f) of the Act (15 U.S.C. 78 1), to be registered on a
national securities exchange; or (3) is exempted by the Securi
ties and Exchange Commission from the operation of section
7 (c ) (2) of the Act (15 U.S.C. 78g(c) ( 2) ) only to the extent
necessary to render lawful any direct or indirect extension or
maintenance of 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
section 3 (a ) of the Act (12 U.S.C. 78c (a) ( 12) ) , except that the
term does not include a security which is exempted by the Securi
ties and Exchange Commission from the operation of section
7(c) ( 2 ) of the Act (12 U.S.C. 78g(c) (2 ) ) only to the extent
described in paragraph (d) (3) of this section.
( /) The term “ non-equity security” means any security other
than an equity security or an exempted security.
SECTION 220.3—GENERAL ACCOUNTS
(a)
Contents of general account.— All financial relations be
tween 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 of the customer’s general account with the creditor,
except that the relations which § 220.4 permits to be included
in any special account provided for by that section may be in
cluded in the appropriate special account, and all transactions
in commodities, and, except to the extent provided in para
graph (b) (2) of § 220.3, all transactions in non-equity securi
ties, exempted securities, and in other securities having no loan
value in a general account under the provisions of § 220.3(c)
and § 220.8 (the Supplement to Regulation T) (except unissued
securities, short sales, and purchases to cover short sales and
contracts involving an endorsement or guarantee of any put,
call, or other option), shall be included in the appropriate special
account provided for by § 220.4. During any period when such
§ 220.8 specifies that registered equity securities shall have no
loan value in a general account, any transaction consisting of a
purchase of a security other than a purchase of 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 appro
priate special account provided for by § 220.4.
Sec. 220.3
REGULATION T
3
( b)
General rule— (1) A creditor shall not effect for or with
any customer in a general account, special bond account sub
ject to § 2 2 0 .4 (0 or special convertible security account subject
to § 220.4 ( /) any transaction which, in combination with the
other transactions effected in such account on the same day,
creates an excess of the adjusted debit balance of such account
over the maximum loan value of the securities in such account,
or increases any such excess, unless in connection therewith the
creditor obtains, as promptly as possible and in any event before
the expiration of five full business days following the date of
such transaction, the deposit into such account of cash or securi
ties in such amount that the cash deposited plus the maximum
loan value of the securities deposited equals or exceeds 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 of the account (whether the gen
eral account, the special bond account subject to § 220.4 (i) or
the special convertible security account subject to § 220.4 ( / ) )
would exeed the maximum loan value of the securities in such
account after such withdrawal. The exceptions are available
only in the event no cash or securities need to be deposited
in such account in connection with a transaction on a previous
day and none would need to be deposited thereafter in connec
tion with any withdrawal of cash or securities on the current
day. The permissible exceptions are (i) registered non-equity
or exempted securities held in the general account on March
11, 1968, and continuously thereafter may be withdrawn upon
the deposit in the account of cash (or registered equity securi
ties counted at their maximum loan value) at least equal to the
“ retention requirement” of such withdrawn securities, or (ii)
except as provided in (i) of this subparagraph, securities hav
ing loan value in the general account, the special bond account
subject to § 220.4 (?), or the special convertible security account
subject to § 220.4 (.?') may be withdrawn upon the deposit in such
account of cash or securities having loan value in such account
counted at the maximum loan value at least equal to the “ reten
tion requirement” of those securities, or (iii) cash may be with
drawn upon the deposit in the general account, the special bond
account subject to § 2 2 0 .4 (0 , or the special convertible security
account subject to § 220.4 (.7) of securities having a maximum
loan value in such account at least equal to the amount of cash
REGULATION T
4
Sec. 220.3
withdrawn, or (iv) upon the sale (other than the short sale)
of securities having loan value in the general account, special
bond account subject to § 220.4 (i) or special convertible security
account subject to § 220.4 (j) there may be withdrawn in cash
an amount equal to the difference between the current market
value of the securities sold and the “ retention requirement” of
such securities, or (v) upon the sale (other than the short sale)
of a registered non-equity security or an exempted security that
was held in the general account on March 11, 1968 and continu
ously thereafter there may be withdrawn in cash an amount
equal to the difference between the current market value of the
securities sold and the “ retention requirement” of those securities
as prescribed in § 220.8 (the Supplement to Regulation T ) .
(3)
Rules for computing the maximum loan value of the
securities in a general account, special bond account subject to
§ 220.4 (i) or special convertible security account subject to
§ 220.4 O') and the adjusted debit balance of such account are
provided in paragraphs (c) and (d) of this section, and certain
modifications of and exceptions to the general rule stated in this
paragraph are provided in the subsequent paragraphs of this
section and in § 220.6.
(c)
Maximum loan value and current market value.— (1) The
maximum loan value of the securities in a general account, spe
cial bond account subject to § 220.4 (i), or special convertible
security account subject to § 220.4 ( /) is the sum of the maxi
mum loan values of the individual securities in such account,
including securities (other than unissued securities) bought for
such account but not yet debited thereto, but excluding securi
ties sold for such account whether or not payment has been
credited thereto.
( 2)
Except as otherwise provided in this paragraph, the
maximum loan value of a security in a general account, special
bond account subject to §220.4 (i),or special convertible security
account subject to § 220.4 ( /) shall be such maximum loan value
as the Board shall prescribe from time to time in § 220.8 (the
Supplement to Regulation T ) . No collateral other than an ex
empted security or a registered non-equity security held in such
account on March 11, 1968 and continuously thereafter, or
registered equity security shall have any loan value in a general
account except that a registered equity security eligible for a
special convertible bond account pursuant to § 220.4 ( /) shall
Sec. 220.3
REGULATION T
5
have loan value in a general account only if held in the account
on March 11, 1968 and continuously thereafter.
(3) A warrant or certificate which evidences only a right to
subscribe to or otherwise acquire any security and which expires
within ninety days of issuance shall have no loan value in a
general account, special bond account subject to § 2 2 0 .4 (0 , or
special convertible security account subject to § 220.4 ( ; ) ; but,
if the account contains the security to the holder of which such
warrant or certificate has been issued and such warrant or cer
tificate is held in an appropriate account maintained by the
creditor for the customer the current market value of such
security (if such security is a registered security) shall, for
the purpose of calculating its maximum loan value, be increased
by the current market value of such warrant or certificate.
(4) For the current market value of a security throughout the
day of its purchase or sale, the creditor shall use its total cost
or the net proceeds of its sale, as the case may be, and at any
other time shall use the closing sale price of the security on
the preceding business day as shown by any regularly published
reporting or quotation service. In the absence of any such closing
sale price, the creditor may use any reasonable estimate of the
market value of such security as of the close of business on such
preceding business day.
( d)
Adjusted debit balance.— For the purpose of this Part, the
adjusted debit balance of a general account, special bond account
subject to § 220.4(f) or special convertible security account
subject to § 220.4 ( /) shall be calculated by taking the sum of
the following items:
( 1) the net debit balance, if any, of such account;
( 2 ) the total cost of any securities (other than unissued
securities) bought for such account but not yet debited thereto;
(3) the current market value of any securities (other than
unissued securities) sold short in such account plus, for each
such security (other than an exempted security), such amount
as the Board shall prescribe from time to time in § 220.8
(the Supplement to Regulation T) as the margin required
for such short sales, except that such amount so prescribed in
such § 220.8 need not be included when there are held in such
account securities exchangeable or convertible within 90 calen
dar days, without restriction other than the payment of money,
into such securities sold short;
(4) the amount of margin specified by paragraph ( h) of
this section for every net commitment in such account in un
6
REGULATION T
Sec. 220.3
issued securities, plus all unrealized losses on each com m itm ent
in unissued securities and m inus all unrealized gains (not
exceeding the required m argin ) on each com m itm ent in un
issued secu rities; and
(5 ) the amount o f any m argin custom arily required b y the
creditor in connection w ith his endorsem ent or guarantee o f
any put, call or other o p tio n ;
and deducting therefrom the sum o f the follow in g items:
(6 ) the net credit balance, i f any, o f such accou n t; and
(7 ) the net proceeds o f sale o f any securities (oth er than
unissued securities) sold fo r such account but fo r w hich pay
m ent has not yet been credited thereto.
In case such account is the account o f a partner o f the creditor
or the account o f a jo in t adventure in w hich the creditor partici
pates, the adjusted debit balance shall be com puted according
to the foreg oin g rule and the supplem entary rules prescribed
in § 2 2 0 .6 (a ) and ( b ) .
(e)
Liquidation in lieu of deposit.*— In any case in w hich the
deposit required by paragraph (b ) o f this section, or any portion
thereof, is not obtained by the creditor within the five-day period
specified therein, registered nonexem pted securities shall be sold
(or, to the extent that there are insufficient registered non
exempted securities in the general account, special bond account
subject to § 22 0. 4 ( f ), or special convertible security account
subject to § 220.4 ( j ) other liquidating transactions shall be
effected in such a ccou n t), p rior to the expiration o f such fiveday period, in such am ount that the resulting decrease in the
adjusted debit balance o f such account exceeds, b y an amount
at least as great as such required deposit or the undeposited
portion thereof, the “ retention requirem ent” o f any registered
or exempted securities sold: P rovided, That a creditor is not
required to sell securities or to effect other liquidating transac
tions specified by this paragraph in an am ount greater than
necessary to elim inate the excess o f the adjusted debit balance
o f such account over the m axim um loan value o f the securities
rem aining in such account after such liquidation.
( / ) Extensions of time— In exceptional cases, the five-day
period specified in paragraph (b ) o f this section may, on appli
*
This requirement relates to the action to be taken when a customer
fails to make the deposit required by § 220.3(6), and it is not intended to
countenance on the part of customers the practice commonly known as
“ free-riding,” to prevent which the principal national securities exchanges
have adopted certain rules. See the rules of such exchanges and § 220.7(e).
Sec. 220.3
REGULATION T
7
cation o f the creditor, be extended fo r one or m ore limited
periods com m ensurate w ith the circum stances by any regularly
constituted com m ittee o f a national securities exchange having
ju risdiction over the business conduct o f its m embers, o f which
exchange the creditor is a m em ber or through w hich his transac
tions are effected, provided such committee is satisfied that the
creditor is actin g in good faith in m aking the application and
that the circum stances are in fa ct exceptional and w arrant
such action.
( g) Transactions on given day— F or the purposes o f paragraph
( b) o f this section, the question o f whether or not an excess
o f the adjusted debit balance o f a general account, special bond
account subject to § 220.4 ( i ) , or special convertible bond account
subject to § 220.4 ( j ) over the m axim um loan value o f the securi
ties in such account is created or increased on a given day shall
be determ ined on the basis o f all the transactions in the account
on such day exclusive o f any deposit o f cash, deposit o f securities,
coverin g transaction or other liquidation that has been effected
on such day, pursuant to the requirement o f paragraphs (6 )
or ( e ) o f this section, in connection with a transaction on a
previous day. In any case in w hich an excess so created, or in
creased so caused, b y transactions on a given day does not ex
ceed $100, the creditor need n ot obtain the deposit specified
th erefor in subparagraph ( b ) ( 1 ) o f this section. A n y transac
tion which serves to meet the requirements o f paragraph (e)
o f this section or otherw ise serves to perm it any offsetting
transaction in an account shall, to that extent, be unavailable to
perm it any other transaction in such account. F or the purposes o f
this P art (R egulation T ) , i f a security has maximum loan value
under subparagraph ( c) (1 ) o f this section in a general account,
special bond account subject to § 2 2 0 .4 (f), or special convertible
security account subject to § 220.4 ( / ) a sale o f the same security
(even though not the same certificate) in such account shall be
deemed to be a lon g 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, special bond account
subject to § 2 2 0 .4 (0 , or special convertible security account
subject to § 220.4 ( j ) as the m argin required fo r a net long com
m itm ent in unissued securities shall be the current m arket value
o f the net am ount o f unissued securities long minus the m axi
mum loan value w hich such net amount o f securities would have
8
REGULATION T
Secs. 220.3-220.4
i f they w ere issued registered securities held in such account; and
the am ount to be so included as the m argin required fo r a net
short com m itm ent in unissued securities shall be the am ount
w hich w ould be required as m argin f o r the net am ount o f un
issued securities short i f such securities w ere issued securities
and w ere sold short in such account: P rovid ed , That n o am ount
need be included as m argin fo r a net short com m itm ent in un
issued securities w hen there are held in such account securities
in respect o f w hich the unissued securities are to be issued, n or
fo r any net position in unissued securities that are exem pted
securities.
(2 )
W henever a creditor, pursuant to a purchase o f an un
issued security fo r a custom er, receives an issued security w hich
is n ot a registered o r exem pted security, the cred itor shall treat
any paym ent b y him f o r such issued security as a transaction
(oth er than a w ithdraw al w hich increases the adjusted debit
balance o f a general account, special bond account su bject to
§ 220.4 ( i ) , o r special convertible security account su bject to
§ 220.4 ( j ) b y the am ount o f the paym ent m inus the am ount re
quired to be included in the adjusted debit balance o f such
account, at the tim e o f and in connection w ith the purchase o f
the unissued security, as the m argin required f o r such purchase.
SECTION 220.4— SPECIAL ACCOUNTS
(a )
General rule.— (1) Pursuant to this section, a creditor
m ay establish fo r any custom er one o r m ore special accounts.
(2 ) E ach such special account shall be recorded separately
and shall be confined to the transactions and relations specifically
authorized fo r such account b y the appropriate paragraph o f this
section and to transactions and relations incidental to those
specifically authorized. A n adequate record shall be m aintained
show ing fo r each such account the full details o f all transactions
in the account.
(3 ) A special account established pursuant to this section
shall n ot be used in any w ay f o r the purpose o f evading o r
circum venting any o f the provisions o f this Part. I f a custom er
has w ith a creditor both a general account and one o r m ore
such special accounts, the creditor shall treat each such special
account as i f the custom er had w ith the cred itor no general ac
count, special bond account su bject to § 220.4 ( i ) , o r special con
vertible security account su bject to § 2 2 0.4( j ) .
Sec. 220.4
REGULATION T
9
(4 )
The only other conditions to w hich transactions in such
special accounts shall be subject under the provisions o f this
P art shall be such conditions as are specified in the appropriate
paragraph o f this section and in §§ 220.2, 220.6, or 220.7.
(6 )
Special omnibus account— In a special omnibus account, a
m em ber o f a national securities exchange may effect and finance
transactions fo r 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 (o r that he does not extend
or maintain credit to or fo r custom ers except in accordance
therewith as i f he w ere subject thereto) and from w hom the
m em ber receives (1 ) w ritten notice, pursuant to a rule o f the
Securities and E xchange Commission concerning the hypothe
cation o f custom ers’ securities by brokers or dealers (Rule 8 c-l
(17 C F R § 2 4 0 .8 c-l) or Rule 15c2-l (17 C F R § 2 4 0 .1 5 c 2 -l)) , to
the effect that all securities carried in the account will be car
ried fo r the account o f the customers o f the brok er or dealer
and (2 ) w ritten notice that any short sales effect 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 fo r o r w ith any custom er bona fide cash
transactions in securities in w hich the creditor may:
(i) Purchase any security for, or sell any security to, any
custom er, provided funds sufficient fo r the purpose are already
held in the account or the purchase or sale is in reliance upon
an agreem ent accepted by the creditor in good faith that the
custom er will prom ptly make full cash payment fo r the
security and that the custom er does not contemplate selling
the security p rior to m aking such payment.
(ii) Sell any security fo r, or purchase any security from ,
any custom er, provided the security is held in the account or
the creditor is inform ed that the customer or his principal
owns the security and the purchase or sale is in reliance upon
an agreem ent accepted by the creditor in good faith that the
security is to be prom ptly deposited in the account.
(2 )
In case a custom er purchases a security (oth er than
an exempted security) in the special cash account and does not
make full cash payment fo r the security within 7 days a fter the
date on w hich the security is so purchased, the creditor shall,
except as provided in subparagraphs ( 3 ) — (7 ) o f this paragraph,
prom ptly cancel or otherw ise liquidate the transaction or the
unsettled portion thereof.
10
REGULATION T
Sec. 220.4
(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 a fter the date on w hich the
security is made available by the issuer fo r delivery to pur
chasers. I f the security when so purchased is a “ when distrib
uted” security w hich is to be distributed in accordance w ith a
published plan, the period applicable to the transaction under
subparagraph (2 ) o f this paragraph shall be 7 days a fter the
date on w hich the security is so distributed. I f the security
when so purchased is a new security issued or to be issued fo r
the purpose o f refu n din g outstanding securities w hich mature,
or are to be payable upon presentation fo r redem ption, w ithin
35 days o f the date on w hich the new security is m ade available
by the issuer fo r delivery to purchasers, the period applicable
to the transaction under subparagraph (2 ) o f this paragraph
shall be 7 days a fter such m aturity o r paym ent date: Provided,
That this sentence shall apply only to the paym ent o f that portion
o f the purchase price that does not exceed 103 per cent o f the
am ount that w ill be payable to the purchaser o f the new security
upon such m aturity o f, or paym ent fo r, securities owned b y him
at the tim e o f the purchase.
(4 ) I f any shipment o f securities is incidental to the consum
m ation o f the transaction, the period applicable to the transac
tion under subparagraph (2 ) o f this paragraph shall be deemed
to be extended by the num ber o f days required fo r all such
shipments, but not by m ore than 7 days.
(5 ) I f the creditor, acting in good fa ith in accordance w ith
subparagraph (1 ) o f this paragraph, purchases a security fo r
a custom er, or sells a security to a customer, w ith the under
standing that he is to deliver the security prom ptly to the
custom er, and the full cash paym ent to be made prom ptly b y
the custom er is to be m ade against such delivery, the creditor
m ay at his option treat the transaction as one to w hich the
period applicable under subparagraph (2 ) o f this paragraph
is not the 7 days therein specified but 35 days a fter the date o f
such purchase or sale.
(6 ) I f an appropriate com m ittee o f a national securities ex
change or a national securities association is satisfied that the
creditor is acting in good faith in m aking the application, that
the application relates to a bona fide cash transaction, and that
exceptional circum stances w arrant such action, such committee,
on application o f the creditor, m ay (i) extend any period speci
Sec. 220.4
REGULATION T
11
fied in subparagraphs ( 2 ) , ( 3 ) , (4 ) or (5 ) o f this paragraph fo r
one or m ore lim ited periods commensurate w ith the circum
stances, or ( i i) , in case a security purchased b y the custom er in
the special cash account is a registered or exempted security,
authorize tran sfer o f the transaction to a general account, special
bond account subject to § 2 2 0 .4 (0 , special convertible security
account subject to § 2 2 0.4 ( j ) , or special omnibus account and
com pletion o f the transaction pursuant to the provisions o f this
P art 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 i f the
last day o f any such period is a Saturday, Sunday, or holiday,
such period shall be considered to end on the next full business
day. F or the purposes o f this paragraph, a creditor may, at his
option, disregard any sum due by the custom er not exceeding
$100.
(8 ) Unless funds sufficient fo r the purpose are already in the
account, no security other than an exempted security shall be
purchased for, or sold to, any custom er in a special cash account
w ith the creditor i f any security other than an exempted secu
rity has been purchased by such custom er in such an account
during the preceding 90 days, and then, f o r any reason whatever,
w ithout having been previously paid fo r in full by the customer,
the security has been sold in the account or delivered out to
any broker or dealer: Provided, That an appropriate committee
o f a national securities exchange or a national securities associa
tion, on application o f the creditor, m ay authorize the creditor
to disregard fo r 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 custom er are acting in good faith and
that circum stances w arrant such authorization. F or 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 m ay disregard fo r the purposes o f this subpara
graph a sale w ithout prior paym ent provided full cash payment
is received w ithin the period described by subparagraph (2 ) o f
this paragraph and the custom er has not withdraw n the proceeds
o f sale on or before the day on which such payment (and also
final paym ent 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 delivery was fo r
12
REGULATION T
S ec. 220.4
deposit into a special cash account w hich the latter brok er or
dealer m aintains fo r the same custom er and in w hich account
there are already sufficient funds to pay fo r the security so
purchased; and fo r the purpose o f determ ining in that connection
the status o f a custom er’s account at another broker or dealer,
a creditor m ay rely upon a w ritten statement w hich he accepts
in good faith fro m such other broker or dealer.
(d ) Special arbitrage account.— In a special arbitrage account,
a m em ber o f a national securities exchange m ay effect and finance
fo r any custom er bona fide arbitrage transactions in securities.
F o r the purposes o f this paragraph, the term “ arbitrage” means
(1 ) a purchase o r sale o f a security in one m arket together
w ith an offsetting sale or purchase o f the same security in a
different m arket at as nearly the same tim e as practicable, fo r
the purpose o f taking advantage o f a difference in prices in
the tw o m arkets, or (2 ) a purchase o f a security w hich is,
w ithout restriction other than the paym ent o f m oney, exchange
able or convertible within 90 calendar days follow in g the date
o f its purchase into a second security together w ith an offsetting
sale at or about the same tim e o f such second security, f o r the
purpose o f 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 ac
count, a creditor m ay effect and carry fo r any custom er trans
actions in com m odities.
( /) Special miscellaneous account.— In a special m iscellaneous
account, a creditor m a y :
(1 ) W ith the approval o f any regularly constituted com m it
tee o f a national securities exchange having jurisdiction over
the business conduct o f its mem bers, extend and maintain credit
to meet the em ergency needs o f any creditor;
(2 ) (i) Extend and m aintain credit, (a ) to or fo r any part
ner o f a firm w hich is a m em ber 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 ; o r (b ) to or fo r any person who is or will becom e the
holder o f stock o f a corporation w hich is a m em ber o f a national
securities exchange to enable such person to purchase stock in
such corporation, or to purchase stock in an affiliated corpora
tion o f such corporation; provided the lender as well as the
b orrow er is a partner in such m em ber firm or a stockholder in
such m em ber corporation, or the lender is a firm or a stock
holder in such m em ber corporation, or the lender is a firm or
Sec. 220.4
REGULATION T
13
corporation w hich is a m em ber o f a national securities exchange
and the b orrow er is a partner in such firm or a stockholder in
such corporation;
(ii) E xtend and maintain subordinated credit to another
creditor fo r capital pu rp oses: P rovided, That,
(a ) E ither the lender or the borrow er is a firm or corpo
ration w hich is a m em ber o f a national securities exchange,
the other party to the credit is an affiliated corporation o f such
m em ber firm or corporation, and, in addition to the fa ct that
an appropriate com m ittee o f the exchange is satisfied that the
credit is not in contravention o f any rule o f the exchange, the
credit has the approval o f such committee, or
(b ) The lender as well as the borrow er is a m em ber o f
such exchange, the credit has the approval o f an appropriate
com m ittee o f the exchange, and the committee, in addition to
being satisfied that the credit is not in contravention o f any
rule o f the exchange, is satisfied that the credit is outside the
ordinary course o f the lender’s business, and that, i f the bor
row er’s firm or corporation or an affiliated corporation o f such
firm or corporation does any dealing in securities fo r its own
account, the credit is not fo r the purpose o f increasing the
amount o f such dealing.
(iii) F o r the purpose o f subdivisions (i) and (ii) o f this
subparagraph, the term “ affiliated corporation” means a corpo
ration all the com m on stock o f w hich is owned directly or in
directly by the m em ber firm or general partners and employees
o f the firm, or by the m em ber corporation or holders o f voting
stock and employees o f the corporation and an appropriate
com m ittee o f the exchange has approved the m em ber firm ’s or
m em ber corporation ’s affiliation w ith such affiliated corporation.
(3 ) Purchase any security from any custom er who is a
broker or dealer, or sell any security to such custom er: Provided,
That the creditor acting in good faith purchases or sells the
security fo r delivery, against full payment o f the purchase price,
as prom ptly as practicable in accordance w ith the ordinary
usage o f the trade;
(4 ) E ffect and finance, fo r any m ember o f a national secu
rities exchange w ho is registered and acts as an odd-lot dealer
in securities on the exchange, such m em ber’s transactions as an
odd-lot dealer in such securities, or effect and finance, fo r any
jo in t adventure in w hich the creditor participates, any trans
actions in any securities o f an issue w ith respect to w hich all
participants, or all participants other than the creditor, are
REGULATION T
14
Sec. 220.4
registered and act on a national securities exchange as odd-lot
dealers;
(5 ) E ffect transactions fo r and finance any jo in t adventure
or group in w hich the creditor participates and in w hich all par
ticipants are dealers (w hether such participants be acting join tly
or se v e ra lly ), or any m em ber th ereof or participant therein,
fo r the purpose o f facilitatin g the underw riting or distributing
o f all or part o f an issue o f securities (i) not through medium
o f a national securities exchange, or (ii) the distribution o f
w hich has been approved by the appropriate com m ittee o f a
national securities exchange;
(6 ) E ffect fo r any custom er the collection o r exchange
(oth er than by sale or purchase) o f securities deposited by the
custom er specifically fo r such purposes, and (su b ject to any other
applicable provisions o f law ) receive from or fo r any customer,
and pay out or deliver to or fo r any customer, any m oney or
securities;
(7 ) E ffect and carry fo r any custom er transactions in
foreign exch an ge; and
(8 ) Extend and maintain credit to or fo r any custom er
w ithout collateral or on any collateral w hatever fo r any purpose
other than purchasing or ca rryin g o r trading in securities.
(g ) Specialist’s account— In a special account designated as
a specialist’s account, a creditor m ay effect and finance, fo r any
m em ber o f a national securities exchange who is registered and
acts as a specialist in securities on the exchange, such m em ber’ s
transactions as a specialist in such securities, o r effect and
finance, fo r any jo in t adventure in w hich the creditor partici
pates, any transactions in any securities o f an issue w ith respect
to w hich 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 w hich it would be subject if it w ere a general
account except that if the specialist’s exchange, in addition to
the other requirements applicable to specialists, is designated
by the Board o f G overnors o f the Federal Reserve System as
requiring reports suitable fo r supplying current inform ation
regarding specialists’ use o f credit pursuant to this paragraph,
the requirem ents o f § 220. 6( b) regarding jo in t adventures
shall not apply to such account and the m axim um loan value o f
a registered security in such account shall be as determined by
the creditor in good faith.
( h) Special subscriptions account.— In a special subscriptions
Sec. 220.4
REGULATION T
15
account a creditor m ay effect and finance the acquisition o f a
registered security fo r a custom er through the exercise o f a right
to acquire such security w hich is evidenced by a w arrant or
certificate issued to stockholders and expiring w ithin 90 days
o f issuance, and such special subscriptions account shall be
subject to the same conditions to which it would be subject if
it w ere a general account, except th a t:
(1 ) E ach 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 m axim um loan value o f the securities so
acquired equals or exceeds the subscription price, g ivin g effect
to a m axim um loan value fo r the securities so acquired o f 75
per cent o f their current m arket value as determined by any
reasonable m ethod;
(2 ) A fte r O ctober 20, 1967, at the tim e when credit is ex
tended pursuant to this paragraph, the creditor shall compute
the am ount b y w hich the credit exceeds the m aximum loan value
o f the collateral as prescribed b y § 220.8 (the Supplement to
Regulation T ) and the custom er shall reduce the credit by
an am ount equal to at least one-fourth o f such sum by the end
o f each o f the fo u r succeeding three-calendar-m onth periods or
until the credit does n ot exceed the current m axim um loan value
o f the collateral, w hichever shall occur first, and, i f the creditor
fails to obtain the required quarterly reduction or a portion
th ereof w ith respect to a particular acquisition within five full
business days after such reduction is due, the creditor shall
prom ptly liquidate a portion o f the collateral so acquired and
apply the proceeds o f the sale to reduce the credit, in an amount
equal to at least tw ice the required payment or portion thereof
fo r the first tw o such liquidations, at least equal to the required
paym ent or portion th ereof fo r the third such liquidation, and
at least sufficient so that the rem aining credit does not exceed
the current m axim um loan value o f the rem aining collateral
a fter the fou rth such liqu ida tion : Provided, That, no such liqui
dation need be in an am ount greater than is necessary so that
the rem aining credit does not exceed the m axim um loan value
o f the rem aining collateral determined as o f the date the credit
was extended: A n d provided fu rth er, That as to loans made
between O ctober 20, 1967, and March 11, 1968 such fo u r suc
ceeding periods shall begin on M arch 11, 1968; and
(3 ) The creditor shall not perm it any withdrawal o f cash or
securities from the account so long as the rem aining credit
REGULATION T
16
Secs. 220.4-220.5
exceeds the maximum loan value of the remaining collateral in
the account, except that when the remaining credit extended in
connection with a given acquisition of securities in the account
has become equal to or less than the maximum loan value of
such securities as prescribed in § 220.8 (the Supplement to Reg
ulation T ) (or in connection with an acquisition after October
20, 1967, the requirements of subparagraph (2) of this section
have been fulfilled), such securities shall be transferred to the
general account (or, if eligible, to a special convertible security
account pursuant to § 220.4 ( / ) ) together with any remaining
portion of such credit. In order to facilitate the exercise of a
right in accordance with the provisions of this paragraph, a
creditor may permit the right to be transferred from a general
account to the special subscriptions account without regard to
any other requirement of this Part.
(1) Special bond account.— In a special bond account a creditor
may effect and finance transactions in exempted securities and
registered non-equity securities for any customer.
(j) Special convertible security account.— (1) In a special con
vertible security account a creditor may extend credit on any
registered equity security consisting of a security convertible
into stock or a security carrying a warrant or right to subscribe
to or purchase stock.
(2) A special convertible security account shall be subject to
the same conditions to which it would be subject if it were a
general account except that the maximum loan value of the
securities in the account shall be as prescribed from time to time
in § 220.8 (the Supplement to Regulation T ).
(3) Any security which ceases to be an equity security while
held in this account shall continue to be treated as an equity
security as long as it is continuously held in this account.
(4) In the event that any stock is substituted for security
held in this account such stock shall thereupon be transferred to
the customer's general account against a deposit of cash or
registered equity securities eligible for an extension of credit
in this account (counted at their maximum loan value) equal
to at least the maximum loan value of the security for which
such substitution is made.
SECTION 220.5— BORROW ING BY MEM BERS,
BROKERS, AN D D E A LE RS
>
(a)
General rule.— It is unlawful for any creditor, directly or
indirectly, to borrow in the ordinary course of business as a
Secs. 220.5-220.6
17
REGULATION T
broker or dealer on any registered security
exempted security) e x c e p t:
(other than an
(1 ) fro m or through a mem ber bank o f the Federal Reserve
System ; or
(2 ) fro m any nonm em ber bank w hich shall have filed w ith
the B oard an agreem ent w hich is still in fo rce and w hich is in
the fo rm prescribed by this P art; or
(3 ) to the extent to which, under the provisions o f this
Part, loans are perm itted between members o f a national secu
rities exchange a n d /o r brokers a n d /o r dealers, or loans are
perm itted to meet em ergency needs.
( b) Agreements of nonmember banks.— A n agreem ent filed pur
suant to section 8 ( a ) o f the A ct (15 U.S.C. 7 8 h (a )) by a bank
not a m em ber o f the Federal Reserve System shall be substantially
in the form contained in F orm 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 i f it has an office or agency in the
United States and its principal place o f business outside the
U nited States. The agreem ent filed b y any other nonmember
bank shall be in substantially the form contained in F orm F.R.
T - l. A n y nonm em ber bank w hich has executed any such agree
m ent m ay term inate the agreem ent i f it obtains the w ritten
consent o f the Board. Blank form s o f such agreements, inform a
tion regarding their filing or term ination, and inform ation
regarding the names o f nonm em ber banks fo r w hich such agree
ments are in force, m ay be obtained from any Federal Reserve
Bank.
(c )
Borrowing from other creditors.— A creditor m ay b orrow
fro m another creditor in the ordinary course o f business as a
broker or dealer on any registered security to the extent and
su bject to the term s upon w hich the latter may extend credit to
him in accordance w ith the provisions o f this Part, and subject
to any other applicable provisions o f law.
SECTION 220.6— CERTAIN TECHNICAL DETAILS
(a)
Accounts of partners.— In case a general account, special
bond account subject to § 220.4 ( i ) , or special convertible security
account su bject to § 220.4 ( / ) 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 m axim um loan value o f the securities
therein, shall disregard the partner's financial relations w ith
the firm as reflected in his capital and ordinary draw ing ac
counts.
18
REGULATION T
Sec . 220.6
( b) Contribution to joint adventure.— In case a general account,
special bond account subject to § 220.4 ( i ) , or special convertible
security account subject to § 220.4 ( j ) is the account o f a jo in t
adventure in w hich the creditor participates, the adjusted debit
balance o f such account shall include, in addition to the items
specified in § 220.3 ( d) , any am ount b y w hich the cred itor’s con
tribution to the jo in t adventure exceeds the contribution w hich
he would have m ade i f he had contributed m erely in proportion
to his righ t to share in the profits o f the jo in t adventure.
(c ) Guaranteed accounts.— N o guarantee o f a custom er’s ac
count shall be given any effect fo r purposes o f this Part.
( d) Transfer of accounts— (1 ) In the event o f the tran sfer o f
a general account, special bond account subject to § 2 2 0 .4 (f),
or special convertible security account subject to § 220.4 ( j )
from one creditor to another, such account m ay be treated fo r
the purposes o f this P art as i f it had been m aintained by the
transferee fro m the date o f its o r ig in : P rovided, That, the trans
feree accepts in good faith a signed statement o f the tran sferor
that no cash or securities need be deposited in such account in
connection w ith any transaction that has been effected in such
account or, in case he finds that it is not practicable to obtain
such a statement from the tran sferor, accepts in good faith
such a signed statement from the customer.
(2 ) In the event o f the tran sfer o f a general account, special
bond account subject to § 2 2 0 .4 (f), or special convertible secur
ity account subject to § 2 2 0 .4( j ) , from one custom er to another,
or to others, as a bona fide incident to a transaction that is not
undertaken fo r the purpose o f avoiding the requirem ents o f
this Part, each such transferee account m ay be treated by the
creditor fo r the purposes o f this P art as if it had been m ain
tained fo r the transferee from the date o f its o rig in : P rovided,
That, the creditor accepts in good faith and keeps w ith such
transferee account a signed statement o f the tran sferor describ
ing the circum stances givin g rise to the transfer.
(e ) Reorganizations— A creditor m ay, w ithout regard to the
other provisions o f this Part, effect fo r a custom er the exchange
o f any registered or exem pted security in a general account,
special bond account subject to § 220.4 ( i ) , or special convertible
security account su bject to § 2 2 0 .4 ( j ) , fo r the purpose o f par
ticipating in a reorganization or recapitalization in w hich the
security is in volved: P rovided, That i f an unregistered non
exempted security is acquired in exchange, the cred itor shall
not, fo r a period o f 60 days follow in g such acquisition, perm it
S ec. 220.6
REGULATION T
19
the w ithdraw al o f such security or the proceeds o f its sale from
such account except to the extent that such security or proceeds
could be w ithdraw n i f the security w ere a registered security.
( / ) Time of receipt of funds or securities.— F o r the purposes
o f this Part, a creditor may, at his option (1 ) treat the receipt
in good faith o f any check or d ra ft draw n on a bank w hich in
the ordin ary course o f business is payable on presentation, or
any order on a savings bank w ith passbook attached w hich is
so payable, as receipt o f paym ent o f the amount o f such check,
d ra ft or order; (2 ) treat the shipment o f securities in good faith
with sight d ra ft attached as receipt o f payment o f the amount
o f such sight d r a ft; and (3 ) in the case o f the receipt in good
faith o f w ritten or telegraphic notice in connection with a special
om nibus account o f a custom er not located in the same city
that a specified security or a check or d raft has been dispatched
to the creditor, treat the receipt o f such notice as receipt o f
such security, check or draft: Provided, how ever, That i f the
creditor receives notice that such check, draft, order, o r sight
d ra ft described in subparagraphs ( 1 ) , ( 2 ) , or (3 ) i f this para
graph is not paid on the day o f presentation, or i f such security,
check o r d ra ft 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 to take by the appropriate provisions o f this P art i f
the provisions o f this paragraph had not been utilized.
(g )
Interest, service charges, etc.— (1) Interest on credit
maintained in a general account, special bond account subject to
§ 2 2 0 .4 (0 , or special convertible security account subject to
§ 220 .4( j ) , com m unication charges with respect to transactions
in such account, shipping charges, premiums on securities b or
rowed in connection w ith short sales or to effect delivery, divi
dends or other distributions due on borrow ed securities, and
any service charges (oth er than com m issions) w hich the creditor
m ay impose, m ay be debited to such 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 con
sideration in calculating the net credit or net debit balance o f
such account.
(2 ) A creditor m ay perm it interest, dividends or other dis
tributions received by the creditor with respect to securities in
a general account, special bond account subject to § 2 2 0 .4 (0 ,
or special convertible security account subject to § 220.4 ( j ) ,
to be withdrawn from such account only on condition that the
adjusted debit balance o f such account does not exceed the
20
REGULATION T
Sec. 220.6
maxim um loan value o f the securities in such account after such
withdraw al, or on condition that (i) such w ithdraw al is made
w ithin 35 days a fter the day on which, in accordance w ith the
creditor’s usual practice, such interest, dividends or other dis
tributions are entered in such account, (ii) such entry in the
account has not served in the meantime to perm it in the account
any transaction w hich could not otherw ise have been effected
in accordance with this Part, and (iii) any cash w ithdraw n does
not represent any arrearage on the security w ith respect to
w hich it was distributed, and the current m arket value o f any
securities w ithdraw n does not exceed 10 per cent o f the current
m arket value o f the security w ith respect to w hich they were
distributed. Failure by a creditor to obtain in a general account,
special bond account subject to § 2 2 0 .4 (0 , or special convertible
security account subject to § 220.4 ( / ) , any cash or securities
that are distributed with respect to any security in such account
shall, except to the extent that w ithdraw al would be perm itted
under the preceding sentence, be deemed to be a transaction
in such account which occurs on the day on w hich the distribu
tion is payable and w hich requires the creditor to obtain in
accordance w ith § 2 2 0 .3 (6 ) a deposit o f cash or m axim um loan
value o f securities at least as great as that o f the distribution.
( 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 b orrow securities (w hether
registered or unregistered) fo r the purpose o f m aking delivery
o f such securities in the case o f short sales, failure to receive
securities he is required to deliver, or other sim ilar cases, and
(2 ) m ay lend securities fo r such purpose against such a deposit.
(i) Credit for clearance of securities.— The extension or m ain
tenance o f any credit which is m aintained fo r only a fraction
o f a day (that is, fo r only part o f the tim e between the beginning
o f business and m idnight on the same day) shall be disregarded
fo r the purposes o f this Part, if it is incidental to the clearance
o f transactions in securities directly between m em bers o f a na
tional securities exchange or through an agency organized or
employed by such members fo r the purpose o f effecting such
clearance.
(j) Foreign currency— I f foreign currency is capable o f being
converted w ithout restriction into United States currency, a
creditor acting in good faith m ay treat any such foreign cur
rency in an account as a credit to the account in an amount
determined in accordance w ith custom ary practice.
Secs. 220.6-220.7
REGULATION T
21
(k) Innocent mistakes— I f any failure to com ply w ith this
P art results from a mechanical mistake made in good faith in
executing a transaction, recording, determ ining, or calculating
any loan, balance, m arket price or loan value, or other sim ilar
m atter, the creditor shall not be deemed guilty o f a violation
o f this P art i f prom ptly a fter the discovery o f such m istake he
takes w hatever action m ay be practicable in the circumstances
to rem edy such mistake.
SECTION 220.7— MISCELLANEOUS PROVISIONS
(a ) Arranging for loans by others.— A creditor m ay arrange fo r
the extension o r maintenance o f credit to or fo r any custom er o f
such creditor by any person upon the same term s and conditions
as those upon w hich the creditor, under the provisions o f this
Part, m ay him self extend or m aintain such credit to such cus
tomer, but only upon such term s and conditions, except that this
lim itation shall not apply w ith respect to the arranging by a
creditor fo r a bank subject to P art 221 o f this chapter (Regula
tion U ) to extend or m aintain credit on registered securities or
exempted securities.
( b) Maintenance of credit— E xcept as otherwise specifically
forbidden by this Part, any credit initially extended without
violation o f this P art m ay be maintained regardless o f (1 )
reductions in the custom er’s equity resulting from changes in
m arket prices, (2 ) the fa ct that any security in an account ceases
to be registered or exempted, and (3 ) any change in the m axi
mum loan values or m argin requirements prescribed by the
Board under this Part. In m aintaining any such credit, the
creditor m ay accept or retain fo r his own protection additional
collateral o f any description, including unregistered securities.
(c ) Declaration as to purpose of loan.— E very extension o f
credit on a registered security (oth er than an exempted secur
ity) shall be deemed to be fo r the purpose o f purchasing or
carryin g or trading in securities, unless the creditor has accepted
in good faith a w ritten statement by the custom er signed by
the custom er w hich shall state the use to be made o f such credit
and w hich shall state specifically that such credit is neither fo r
the purpose o f purchasing or carryin g or trading in securities
nor fo r the purpose o f evading or circum venting the provisions
o f this Part. To accept the custom er’s statement in good faith,
the creditor must (1 ) be alert to the circum stances surround
ing the extension o f credit and (2 ) i f he has any inform ation
w hich would cause a prudent man not to accept the statement
REGULATION T
22
Sec. 220.7
without inquiry, have investigated and be satisfied that the cus
tom er’s statement is truthful. A creditor m ay rely upon such a
w ritten statement i f accepted in accordance with this paragraph.
( d ) Reports.— E very creditor shall make such reports as the
B oard m ay require to enable the B oard to perform the functions
conferred upon it by the A ct.
(e) Additional requirements by exchanges and creditors.—
N othing in this P art shall (1 ) prevent any exchange from
adopting and en forcin g any rule or regulation fu rth er restricting
the time or m anner in w hich its m em bers m ust obtain initial
or additional m argin in custom ers’ accounts because o f trans
actions effected in such accounts, or requiring such mem bers
to secure o r maintain higher m argins, or fu rth er restrictin g the
amount o f credit which m ay be extended or m aintained by them,
o r (2 ) m od ify or restrict the right o f any creditor to require
additional security fo r the maintenance o f any credit, to refuse
to extend credit, or to sell any securities or prop erty held as
collateral fo r any loan or credit extended b y him.
( /) Acting as agent.— N o creditor shall act as agent o f any
person extending credit w hich the creditor knows or should
know is secured directly or indirectly b y any registered security
unless the creditor accepts in good fa ith a statement signed by
such person that he does not extend or maintain credit to or fo r
borrow ers in violation o f P arts 207, 220, or 221 o f this Chapter
(R egulations G, T or U ). F or this purpose, such activities o f
an “ agent” include, fo r example, receiving securities to be used
as collateral fo r such credit, determ ining whether the m arket
value o f the collateral fo r such credit is adequate, and requir
ing the deposit o f additional collateral or the reduction o f such
credit. In determ ining w hether there has been an extension o f
credit subject to the provisions o f Parts 207, 220, or 221 o f this
Chapter, and whether he can rely in good faith on the statement
described herein, the creditor must (1 ) be alert to the circum
stances surrounding the extension o f credit and (2 ) if he has
any inform ation that would cause a prudent man not to accept
the statement w ithout inquiry, must have investigated and be
satisfied that the credit either is not subject to such P art or is
extended or maintained in con form ity with the provisions o f
such Part.
Section 220.8 (the Supplement to Regulation T ), prescribing 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 o f the Securities
E xchange A ct o f 1934 (15 U.S.C. 78) that are pertinent to the
subject m atter o f Regulation T :
DEFINITIONS
Sec. 3. (a ) W hen used in this title, unless the context otherwise
requires—
* * *
(3 ) The term “ m em ber” when used w ith respect to an
exchange means any person who is permitted either to effect
transactions on the exchange w ithout the services o f another
person acting as broker, or to make use o f the facilities o f an
exchange fo r transactions thereon w ithout payment o f a com
m ission or fee or w ith the payment o f a com m ission or fee
w hich is less than that charged the general public, and includes
any firm transacting a business as broker or dealer o f which a
m em ber is a partner, and any partner o f any such firm.
(4 ) The term “ brok er” means any person engaged in the
business o f effecting transactions in securities fo r the account
o f others, but does not include a bank.
(5 ) The term “ dealer” means any person engaged in the
business o f buying and selling securities fo r his ow n account,
through a broker or otherwise, but does not include a bank,
o r any person in sofar as he buys or sells securities fo r his own
account, either individually or in some fiduciary capacity, but
not as a part o f a regular business.
(6 ) The term “ bank” means (A ) a banking institution
organized under the laws o f the United States, (B ) a member
bank o f the Federal R eserve System, (C ) any other banking
institution, w hether incorporated or not, doing business under
the laws o f 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 pow ers sim ilar to those perm itted to
national banks under section 11 (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 w hich is not operated fo r the purpose o f 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.
* * *
*
This statutory provision was repealed September 28, 1962. F or the
present provisions on this subject, see 12 U.S.C. 92a.
23
REGULATION T APPENDIX
24
(9 ) The term “ person” means an individual, a corporation,
a partnership, an association, a join t-stock com pany, a busi
ness trust, or an unincorporated organization.
(1 0 ) The term “ security” means any note, stock, treasury
stock, bond, debenture, certificate o f interest or participation
in any profit-sharing agreem ent or in any oil, gas, or other
mineral royalty or lease, any collateral-trust certificate, pre
organization certificate or subscription, transferable share,
investm ent contract, voting-trust certificate, certificate o f
deposit, fo r a security, or in general, any instrum ent com
m only know n as a “ security” ; or any certificate o f interest or
participation in, tem porary or interim certificate fo r, receipt
fo r , or w arrant or righ t to subscribe to or purchase, any o f the
foreg oin g ; but shall not include cu rrency o r any note, draft,
bill o f exchange, or banker’s acceptance w hich has a m aturity
at the tim e o f issuance o f not exceeding nine months, exclu
sive o f days o f grace, o r any renewal th ereof the m aturity o f
w hich is likewise limited.
(1 1 ) The term “ equity security” means any stock or sim ilar
security; or any security convertible, w ith or w ithout consid
eration, into such a security; o r ca rryin g any w arrant or
righ t to subscribe to or purchase such a security; or any such
w arrant or right; o r any other security w hich the Com m ission*
shall deem to be o f sim ilar nature and consider necessary or
appropriate, by such rules and regulations as it m ay prescribe
in the public interest or fo r the protection o f investors, to
treat as an equity security.
(1 2) The term “ exem pted security” or “ exem pted securi
ties” shall include securities w hich are direct obligations o f or
obligations guaranteed as to principal or interest by the U nited
States; such securities issued or guaranteed by corporations in
w hich the U nited States has a direct or indirect interest as
shall be designated fo r exem ption by the Secretary o f the
T reasury as necessary or appropriate in the public interest
or fo r the protection o f investors; securities w hich are direct
obligations o f or obligations guaranteed as to principal or
interest by a State or any political subdivision th ereof or any
agency or instrum entality o f a State or any political subdivi
sion th ereof or any m unicipal corporate instrum entality o f one
or m ore States, and such other securities (w hich m ay include,
am ong others, unregistered securities, the m arket in w hich is
* As used here and elsewhere in the 1933 Act, “ Commission” means the
Securities and Exchange Commission.
REGULATION T APPENDIX
25
predom inantly intrastate) as the Commission may, by such
rules and regulations as it deems necessary or appropriate
in the public interest or fo r the protection o f investors, either
unconditionally or upon specified terms and conditions or fo r
stated periods, exem pt fro m the operation o f any one or m ore
provisions o f this title w hich by their term s do not apply to an
“ exempted security” or to “ exempted securities” .
(13 ) The terms “ buy” and “ purchase” each include any
contract to buy, purchase, or otherwise acquire.
(1 4 ) The term “ sale” and “ sell” each include any contract
to sell or otherwise dispose of.
* * *
Sec. 3. (b ) The Com m ission and the Board o f G overnors o f
the Federal Reserve System, as to m atters w ithin their respec
tive jurisdictions, shall have pow er by rules and regulations to
define technical, trade, and accounting term s used in this title
in sofar as such definitions are not inconsistent w ith the pro
visions o f o f this title.
* * *
R EG ISTRATIO N OF N A TIO N AL SECURITIES EXCHANGES
Sec. 6. (a ) A n y exchange m ay be registered w ith the Com
m ission as a national securities exchange under the term s and
conditions hereinafter provided in this section, by filing a reg
istration statement in such fo rm as the Commission may
prescribe, containing the agreements, setting forth the in for
mation, and accom panied by the documents, below specified:
(1 )
A n agreem ent (w h ich shall not be construed as a w aiver
o f any constitutional righ t or any right to contest the validity
o f any rule or regulation) to comply, and to enforce so fa r as is
w ithin its pow ers com pliance by its members, with the provisions
o f this title, and any amendm ent thereto and any rule or regu
lation made or to be made thereunder; * * *
(b ) N o registration shall be granted or remain in force unless
the rules o f the exchange include provision fo r the expulsion,
suspension, or disciplining o f a m em ber fo r conduct or proceed
ing inconsistent w ith ju st and equitable principles o f trade, and
declare that the w illful violation o f any provisions o f this title
or any rule or regulation thereunder shall be considered conduct
or proceeding inconsistent w ith ju st and equitable principles o f
trade.
(c ) N othing in this title shall be construed to prevent any
exchange from adopting and en forcin g any rule not inconsistent
REGULATION T APPENDIX
26
w ith this title and the rules and regulations thereunder and the
applicable laws o f the State in w hich it is located.
*
:Jt
sj:
MARGIN REQUIREMENTS
Sec. 7. (a ) F or the purpose o f preventing the excessive use o f
credit fo r the purchase o r ca rryin g o f securities, the B oard o f
Governors o f the Federal Reserve System shall, p rior to the
effective date o f this section and fro m tim e to tim e thereafter,
prescribe rules and regulations w ith respect to the am ount o f
credit that m ay be initially extended and subsequently maintained
on any security (oth er than an exem pted security) registered on
a national securities exchange. F or the initial extension o f credit,
such rules and regulations shall be based upon the follow in g
sta n d ard : A n amount not greater than w hichever is the higher
o f—
(1 ) 55 per centum o f the current m arket price o f the
security, or
(2 ) 100 per centum o f the lowest m arket price o f the
security during the preceding thirty-six calendar months, but
not m ore than 75 per centum o f the current m arket price.
Such rules and regulations m ay make appropriate provision w ith
respect to the carryin g o f underm argined accounts fo r limited
periods and under specified conditions; the w ithdraw al o f funds
or securities; the substitution or additional purchases o f securi
ties; the tran sfer o f accounts from one lender to another; special
or different m argin requirem ents fo r delayed deliveries, short
sales, arbitrage transactions, and securities to w hich paragraph
(2 ) o f this subsection does not apply; the bases and the methods
to be used in calculating loans, and m argins and m arket prices;
and sim ilar adm inistrative adjustm ents 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 w hich such secu
rity has sold during the preceding thirty-six calendar months.
(b )
N otw ithstanding the provisions o f subsection (a ) o f this
section, the Board o f Governors o f the Federal Reserve System,
may, from time to time, w ith 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 low er m argin
requirements fo r the initial extension or maintenance o f credit
as it deems necessary or appropriate fo r the accom m odation o f
com m erce and industry, having due regard to the general credit
REGULATION T APPENDIX
27
situation o f the country, and (2 ) prescribe such higher m argin
requirements fo r 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 fo r any m em ber o f a national securi
ties exchange or any broker or dealer w ho transacts a business in
securities through the medium o f any such member, directly or
indirectly to extend or maintain credit or arrange fo r the exten
sion or maintenance o f credit to or fo r any customer—
(1 ) On any security (oth er than an exempted security) regis
tered on a national securities exchange, in contravention o f the
rules and regulations w hich 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 w ith such rules and
regulations as the Board o f Governors o f the Federal Reserve
System m ay prescribe (A ) to perm it under specified conditions
and fo r a limited period any such member, broker, or dealer to
m aintain a credit initially extended in con form ity w ith the rules
and regulations o f the Board o f Governors o f the Federal
Reserve System, and (B ) to perm it the extension or maintenance
o f credit in cases w here the extension o r maintenance o f credit
is not fo r the purpose o f purchasing or carryin g securities or o f
evading or circum venting the provisions o f paragraph (1 ) o f this
subsection.
(d ) It shall be unlaw ful fo r any person not subject to subsec
tion (c ) to extend or maintain credit or to arrange fo r the exten
sion or maintenance o f credit fo r the purpose o f purchasing or
carryin g 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 pre
scribe to prevent the excessive use o f credit fo r the purchasing
or carryin g o f or trading in securities in circum vention o f the
other provisions o f this section. Such rules and regulations may
impose upon all loans made fo r the purpose o f purchasing or
carryin g securities registered on national securities exchanges
lim itations sim ilar to those imposed upon members, brokers, or
dealers by subsection (c ) o f this section and the rules and reg
ulations thereunder. This subsection and the rules and regulations
thereunder shall not apply (A ) to a loan made by a person not in
28
REGULATION T APPENDIX
the ordinary course o f his business, (B ) to a loan on an exem pted
security, (C ) to a loan to a dealer to aid in the financing o f the
distribution o f securities to custom ers 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, by such rules and regulations as it m ay deem necessary
or appropriate in the public interest or fo r the protection o f
investors, exempt, either unconditionally or upon specified term s
and conditions o r fo r stated periods, from the operation o f this
subsection and the rules and regulations thereunder.
* * *
RESTRICTIONS ON BORROWING BY MEMBERS,
BROKERS, AND DEALERS
Sec. 8. It shall be unlawful fo r any m em ber o f a national
securities exchange, or any broker or dealer w ho transacts a
business in securities through the m edium o f any such member,
directly or indirectly—
(a )
T o borrow in the ordinary course o f business as a brok er
or dealer on any security (other than an exempted secu rity)
registered on a national securities exchange except (1 ) fro m or
through a m em ber bank o f the Federal Reserve System, (2 ) fro m
any nonm em ber bank w hich shall have filed w ith the Board o f
Governors o f the Federal Reserve System an agreem ent, w hich is
still in force and w hich is in the form prescribed by the Board,
undertaking to com ply with all provisions o f this A ct, the F ed
eral Reserve A ct, as amended, and the Banking A ct o f 1933,
w hich are applicable to m em ber banks and w hich relate to the
use o f credit to finance transactions in securities, and w ith such
rules and regulations as may be prescribed pursuant to such
provisions o f law or fo r the purpose o f preventing evasions
thereof, or (3 ) in accordance w ith such rules and regulations as
the Board o f G overnors o f the Federal Reserve System m ay pre
scribe to perm it loans between such m embers a n d /o r brokers
a n d /o r dealers, or to perm it loans to meet em ergency needs.
A n y such agreem ent filed w ith the Board o f G overnors o f the
Federal Reserve System shall be subject to term ination at any
time by order o f the Board, a fter appropriate notice and oppor
tunity fo r hearing, because o f any failure by such bank to com ply
w ith the provisions th ereof or w ith such provisions o f law or
rules or regulations; and, fo r any w illful violation o f such agree
ment, such bank shall be subject to the penalties provided fo r
REGULATION T APPENDIX
29
violations o f rules and regulations prescribed under this title.
The provisions o f sections 21 and 25 o f this title shall apply in
the case o f any such proceeding or order o f the Board o f Gov
ernors o f the Federal Reserve System in the same manner as
such provisions apply in the case o f proceedings and orders o f
the Commission.
(b ) To perm it in the ordinary course o f business as a broker
his aggregate indebtedness to all other persons, including cus
tom ers’ credit balances (but excluding indebtedness secured by
exempted secu rities), to exceed such percentage o f the net capital
(exclusive o f fixed assets and value o f exchange m em bership)
employed in the business, but not exceeding in any case 2,000 per
centum, as the Commission may by rules and regulations pre
scribe as necessary or appropriate in the public interest or fo r
the protection o f investors.
(c ) In contravention o f such rules and regulations as the Com
m ission shall prescribe fo r the protection o f investors to hypoth
ecate or arrange fo r the hypothecation o f any securities carried
fo r the account o f any custom er under circum stances (1 ) that
will perm it the com m ingling o f his securities without his w ritten
consent with the securities o f any other customer, (2 ) that will
perm it such securities to be com m ingled w ith the securities o f any
person other than a bona fide customer, or (3 ) that will perm it
such securities to be hypothecated, or subjected to any lien or
claim o f the pledgee, fo r a sum in excess o f the aggregate indebt
edness o f such custom ers in respect to such securities.
(d ) T o lend or arrange fo r the lending o f any securities car
ried fo r the account o f any custom er without the w ritten consent
o f such customer.
SEGREGATION AND LIM ITATION OF FUNCTIONS
*
*
*
Sec. 11. (d ) It shall be unlawful fo r a member o f a national
securities exchange who is both a dealer and a broker, or fo r any
person who both as a broker and a dealer transacts a business in
securities through the medium o f a member or otherwise, to
effect through the use o f any facility o f a national securities
exchange or o f the mails or o f any means or instrum entality o f
interstate com m erce, or otherwise in the case o f a member, (1 )
any transaction in connection w ith which directly or indirectly,
he extends or maintains or arranges fo r the extension o r main
tenance o f credit to or fo r a custom er on any security (other
REGULATION T APPENDIX
30
than an exempted security) which was a part of a new issue
in the distribution of which he participated as a member of a
selling syndicate or group within 30 days prior to such transac
tion: Provided, That credit shall not be deemed extended by
reason of a bona fide delayed delivery of any such security
against full payment of the entire purchase price thereof upon
such delivery within thirty-five days after such purchase, * * *
^
REGISTRATION OF SECURITIES
}|c
Jj!
tfi
Sec. 12. (f) * * * Any security for which unlisted trading
privileges are continued or extended pursuant to this subsection
shall be deemed to be registered on a national securities exchange
within the meaning of this Chapter. * * *
❖ * *
ACCOUNTS AN D RECORDS, REPORTS, A N D E XA M IN A T IO N S
*
*
❖
Sec. 17. (b) Any broker, dealer, or other person extending
credit who is subject to the rules and regulations prescribed by
the Board of Governors of the Federal Reserve System pursuant
to this title shall make such reports to the Board as it may re
quire as necessary or appropriate to enable it to perform the
functions conferred upon it by this title. If any such broker,
dealer, or other person shall fail to make any such report or
fail to furnish full information therein, or, if in the judgment
of the Board it is otherwise necessary, such broker, dealer, or
other person shall permit such inspections to be made by the
Board with respect to the business operations of such broker,
dealer, or other person as the Board may deem necessary to
enable it to obtain the required information.
♦ * *
RULES AND REGULATIONS
Sec. 23. (a) The Commission and the Board of Governors of
the Federal Reserve System shall each have power to make such
rules and regulations as may be necessary for the execution of
the functions vested in them by this title, and may for .such
purpose classify issuers, securities, exchanges, and other persons
or matters within their respective jurisdictions. No provision of
this title imposing any liability shall apply to any act done or
omitted in good faith in conformity with any rule or regulation
of the Commission or the Board of Governors of the Federal
REGULATION T APPENDIX
31
R eserve System, notw ithstanding that such rule or regulation
may, a fter such act or om ission, be amended or rescinded or be
determined by judicial or other authority to be invalid fo r any
reason.
*
*
is
V ALIDITY OF CONTRACTS
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 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 fo r listing a security on an exchange)
heretofore or hereafter made the perform ance o f w hich involves
the violation of, or the continuance o f any relationship or prac
tice in violation of, any provision o f this title or any rule or
regulation thereunder, shall be void (1 ) as regards the right o f
any person who, in violation o f any such provision, rule, or regu
lation, shall have made or engaged in the perform ance 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 know ledge o f the facts by reason o f w hich
the m aking or perform ance o f such contract was in violation o f
any such provision, 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 th ereof) made or o f any lien created prior or subsequent
to the enactm ent o f this title, unless at the time o f the making
o f such loan or extension o f credit (o r extension or renewal
th ereof) or the creating o f such lien, the person m aking such
loan or extension o f credit (o r extension or renewal thereof)
or acquiring such lien shall have actual knowledge o f facts by
reason o f which the m aking o f such loan or extension o f credit
(o r extension or renewal th ereof) 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 collec
tion o f any debt or obligation or the enforcem ent o f any lien
by any person w ho 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 regu
lation thereunder affecting the legality o f such debt, obligation,
or lien.
32
REGULATION T APPENDIX
FOREIGN SECURITIES EXCHANGES
Sec. 30. (a ) It shall be unlawful fo r any broker or dealer,
directly or indirectly, to make use o f the mails or o f any means
or instrum entality o f interstate com m erce fo r the purpose o f
effecting on an exchange not w ithin or su bject to the ju risdiction
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 principal place o f business in, a place within or subject
to the ju risdiction o f the United States, in contravention o f such
rules and regulations as the Com m ission m ay prescribe as neces
sary or appropriate in the public interest or fo r the protection
o f investors or to prevent the evasion o f this title.
(b )
The provisions o f this title or o f any rule or regulation
thereunder shall not apply to any person in sofar as he transacts
a business in securities w ithout the ju risdiction o f the United
States, unless he transacts such business in contravention o f
such rules and regulations as the Com m ission m ay prescribe as
necessary or appropriate to prevent the evasion o f this title.
PENALTIES
Sec. 32. (a ) A n y person who w illfully violates any provision
o f this title, or any rule or regulation thereunder the violation
o f w hich is made unlawful or the observance o f w hich is re
quired under the term s o f this title, or any person who w illfully
and know ingly 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, w hich statement was false or m is
leading w ith respect to any material fact, shall upon conviction
be fined not m ore than $10,000, or im prisoned not m ore than
tw o 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 im prisonm ent under this section fo r the
violation o f any rule or regulation i f he proves that he had no
knowledge o f such rule or regulation.
@FedFRASER