Full text of Federal Reserve Bank of New York Circulars : 6715. Amendment to Regulation U

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Federal Reserve
of

N

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Y

bank

ork

f Circular No. 6 7 1 5
L
April 19,1971

AMENDMENT TO REGULATION U
Interim Exemption For Loans to Provide Capital to
Broker-Dealer Firms

To All Banks, Members o f National Securities Exchanges,
and Others Interested in the Second Federal Reserve District;

E nclosed is a copy o f an amendment, effective A p ril 16, 1971, to
Regulation U o f the B oard o f G overnors o f the F ederal R eserve
System. The amendment was announced by the B oard o f G overnors
on A p ril 16; the text o f that announcement was contained in our C ir­
cular No. 6714, which was sent to you on that date.
The amendment permits banks to extend or maintain credit fo r
the purpose o f enabling its custom er to contribute capital to a brokerdealer firm whether in the form o f a subordinated loan, equities in the
accounts o f partners, or a purchase o f stock in a corporation or other­
wise, without regard to the initial m argin requirements o f the regula­
tion. Credit extended after A p ril 16, 1971, and prior to the adoption
o f proposed amendments to R egulation U, also announced in our
Circular No. 6714, would become subject upon subsequent renewal to
the restrictions im posed by such amendments. This action was taken to
facilitate the raising o f capital by broker-dealer firms and to encourage
the perm anency o f such capital.
A dditional copies o f the amendment will be furnished upon request.

A lfred H a y e s ,
President.

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oard o f

G overnors

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R eser ve S y s t e m

CREDIT B Y BAN K S F O R TH E PURPOSE
OF PU RCH ASING OR C A R R Y IN G M A R G IN STOCKS

AMENDMENT TO REGULATION

Effective April 16, 1971, § 221.2 is amended
by deleting “ and” at the end of paragraphs
( j) and (k ), by deleting the period at the
end of paragraph (?) and inserting in its
place “ ; and” , and by adding a new para­
graph (m) as follow s:
SECTION 221.2— E X C E PTIO N S TO
GENERAL RULE
Notwithstanding the provisions of § 221.1,
a bank may extend and may maintain any
credit for the purpose specified in § 221.1,
without regard to the limitations prescribed
therein, or in § 221.3(t), if the credit comes
within any of the following descriptions.
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(m) Any credit extended to or maintained
to a customer for the purpose of making a
loan or contribution of capital to a broker or
dealer subject to Part 220 (Regulation T) if
the loan or contribution is in conformity with
the requirements regarding satisfactory sub­
ordination agreements or equities in the




U

accounts of partners of a rule of the Secu­
rities and Exchange Commission (Rule
15c3-l(c) (2) (A ), ( c ) ( 4 ) , and ( c ) ( 7 ) ) (17
CFR 240.15c3-l(c) (2) (A ),
( c ) ( 4 ) , and
( c ) ( 7 ) ) or the capital rules of an exchange
of which the broker or dealer is a member if
the members thereof are exempt therefrom by
Rule 1 5 c3 -l(b )(2 ) of the Commission (17
CFR 240.15c-l(b) (2 )) or to purchase stock in
a creditor which is a corporation: Provided,
That any such credit extended after April
36, 1971, shall become subject upon renewal
to such additional restrictions as the Board of
Governors may impose by regulation concern­
ing the conditions upon which credit may be
extended for the purpose of making such loan
or contribution: And provided further, That
(i) all of the proceeds of such extension of
credit are so loaned or contributed to the
capital of the broker or dealer, and (ii) that
the proceeds of any withdrawal of such loan
or contribution of capital from the broker or
dealer by the customer or redemption of such
stock shall be used to reduce or retire said
extension of credit.

P R IN T E D IN N E W YO R K