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FED ER AL RESERVE BANK OF N EW YORK r Circular No. 6 1 3 5 ~l March 8, 1968 J Technical Amendments to Regulations G, T, U Effective March 11, 1968 To All BanTcs, Members of National Securities Exchanges, and Others Interested, in the Second Federal Reserve District: Following is the text of a statement issued today by the Board of Governors of the Federal Reserve System : The Board of Governors of the Federal Reserve System announced today the adoption of technical amendments to its regulations governing the use of credit in stock market transactions. These regulations are Regulation T, applying to brokers and dealers, Regulation U, applying to banks, and Regulation G, covering securities loans by others. All of the amendments are technical in nature and designed to clarify certain changes in the margin regulations announced by the Board on February 1, 1968, to become effective on March 11, 1968. The amendments, which also become effective March 11, 1968, w ill: 1. Clarify that the 50 per cent margin requirements applicable to convertible securities was intended to apply only to convertible debt securities and not to preferred stocks. 2. Sharpen the definition o f the term “ indirectly secured” in Regulations U and G to make it clear that securities owned by a borrower will not be treated as collateral for a loan under this section merely because a negative covenant (e.g., restrictions on sale or pledge of assets without the consent of the lender) has been included in the loan agreement, so long as the bank or other lender has in good faith not relied on the securities in making the loan. As previously published, the definition of this term could have been interpreted as including routine negative covenant arrangements common in financial transactions. This change will also eliminate certain technical and administrative difficulties which would otherwise arise in completing the statement as to the purpose of the loan which is required under Regulations U and G. 3. Eliminate the requirement that banks obtain “ purpose statements” in connection with routine transactions involving loans to brokers and dealers, who are subject to supervision and control under other governmental regulations and certain loans that are exempt from regulation, regardless of purpose. 4. Clarify the method by which short sales of convertible bonds are to be carried out under Regulation T. The Board took no action today on a proposed amendment to Regulation U that would, if adopted, exempt from margin regulation loans by banks to broker/dealer firms to finance their market-making activities in convertible bonds. When this proposed amendment was announced on February 1, firms that believed they might be eligible for such an exemption were invited to file, as promptly as possible, reports on their activities in this regard. The Board has not yet received sufficient data to form a basis for a determination as to whether such an exemption is justified and action has been deferred pending receipt and analysis of additional reports. The text of the amendments will be published in the Federal Register and will be available at the Federal Reserve Board and the Federal Reserve Banks. Copies of the amendments will be sent to you shortly. Questions concerning the amendments may be directed to our Bank Examinations Department. The Board of Governors has informed us that certain information need not be supplied by customers in Parts I and II of the statements of purpose required by Regulations G and U — Forms G-3 and U - l. In those parts, the source of valuation and the market value of the collateral for the loan, which must be supplied by the lender, need not also be supplied by the customer. In addition, the Board called attention to the fact that all or part of the information required in Parts I and II of Form G-3 or Form U - l may be provided on a legible separate sheet attached to the form retained by the lender. A lfred H ayes, President.
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