Full text of Federal Reserve Bank of New York Circulars : 6535. Amendments to Regulations T and U

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FED E R AL R E S E R V E BANK
O F N E W YORK

r Circular No. 6 5 3 5 1
L

M a y 4, 1970

J

AMENDMENTS TO REGULATIONS T AND U
Arbitrage Credit

To A ll Banks, B rokers and D ealers, and M em bers of N ational
Securities Exchanges, in the Second Federal R eserve D istric t:

Following is the text of a statement issued May 1 by the Board of Governors of the Federal
Reserve System:
The Board of Governors of the Federal Reserve System today amended the arbitrage provisions of its
Regulations T and U dealing with securities credit. Regulation T applies to credit by brokers, dealers and
members of national securities exchanges while Regulation U applies to credit by banks for the purpose of
purchasing or carrying registered securities and securities on the Board’s over-the-counter margin list.
Transactions in a special arbitrage account are exempt from margin requirements, which presently are
cSO per cent on stocks and 60 per cent on convertible bonds. One condition for the exemption is that the security
purchased must be exchangeable or convertible within 90 days into the security sold in creating the arbitrage.
The amendment permits a 180-day exchange or conversion period when the security purchased is solely a due
bill or other evidence of the right to receive the security that is sold, and the security sold is trading as a
when-issued security.

Enclosed are copies of the amendments; additional copies will be furnished upon request.




A lfred H a y e s ,

President.

CREDIT BY BROKERS AND DEALERS
A M E N D M E N T T O R E G U L A T IO N T

Issu ed by t h e B oard o f G overn ors o f t h e F e d e r a l R eserv e

S y stem

same time as practicable, for the purpose of
taking advantage of a difference in prices in
the two markets, or (2) a purchase of a secur­
ity which is, without restriction other than the
§ 220.4— S P E C IA L A C C O U N T S
payment of money, exchangeable or convertible
within 90 calendar days following the date of
*
*
*
its purchase into a second security together with
(d)
Special arbitrage account. In a special an offsetting sale at or about the same time of
such second security for the purpose of taking
arbitrage account, a member of a national se­
advantage of a disparity in the prices of the
curities exchange may effect and finance for
two securities, except that when the security
any customer bona fide arbitrage transactions
purchased is solely a due bill for, or other evi­
in securities. For the purpose of this paragraph,
dence of the right to receive, only the security
the term “arbitrage” means (1) a purchase or
that is sold, and the security that is sold is
sale of a security in one market together with
trading as a when-issued security, such period
an offsetting sale or purchase of the same se­
shall be 180 calendar days.
curity in a different market at as nearly the
Effective May 1, 1970, paragraph (d) of sec­
tion 220.4 is amended to read as follows:




PR IN T E D IN

N E W YORK

CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING
OR CARRYING MARGIN STOCKS

A M EN D M EN T

I ssued b y t h e

B

oard o f

G

TO

overnors

Effective May 1, 1970, paragraph (j) of sec­
tion 221.2 is amended to read as follows:
§221.2— E X C E P T IO N S T O G E N E R A L
RULE
*

*

*

(j) Any credit extended to a member of a
national securities exchange for the purpose of
financing his or his customers’ bona fide arbi­
trage transactions in securities. For the pur­
poses of this paragraph, the term “arbitrage”
means (1) a purchase or sale of a security in
one market together with an offsetting sale or
purchase of the same security in a different




P R IN T E D IN

R E G U L A T IO N

o f th e

F

ederal

U

R

eser ve

S y s te m

market at as nearly the same time as practicable,
for the purpose of taking advantage of a differ­
ence in prices in the two markets, or (2) a
purchase of a security which is, without restric­
tion other than the payment of money, exchange­
able or convertible within 90 calendar days fol­
lowing the date of its purchase into a second
security together with an offsetting sale at or
about the same time of such second security,
for the purpose of taking advantage of a dis­
parity in the prices of the two securities, except
that when the security purchased is solely a due
bill for, or other evidence of the right to receive,
only the security that is sold, and the security
that is sold is trading as a when-issued security,
such period shall be 180 calendar days; and

N E W YORK