Full text of Federal Reserve Bank of New York Circulars : 7138. Interpretation of Regulation T

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FEDERAL RESERVE BANK
OF N EW YORK

Circular No. 7138~]
May 8, 1973

[

J

INTERPRETATION OF R EG ULATION T

To A ll Brokers and Dealers, and Members o f National Securities
Exchanges, in the Second Federal Reserve District:

Printed below is an excerpt from the Federal Register of May 4, containing the text of an
interpretation of Regulation T, “ Credit by Brokers and Dealers,” adopted April 12 by the Board of
Governors of the Federal Reserve System. The interpretation relates to independent broker/dealers who
arrange credit in connection with the sale of insurance premium funding programs.
Additional copies of this circular will be furnished upon request.
Alfred Hayes,
President.

under the provisions of the special cash
account. It should be understood, of
course, that such account provides a rela­
tively short credit period of up to 7
SUBCHAPTER A— BOARD OF GOVERNORS OF
business days even with so-called cash
TH E FEDERAL RESERVE SYSTEM
transactions. This amendment was in ac­
[Beg. T]
cordant e with the Board’s understanding
in 1969, when the insurance premium
PART 2 2 0 — CREDIT BY BROKERS AND
DEALERS
funding provisions were adopted in
§ 220.4 (k), that firms engaged in a gen­
Independent Broker/Dealers Arranging
eral securities business would not also
Credit in Connection With the Sale of
be engaged in the sale and arranging of
Insurance Premium Funding Programs
credit in connection with such insurance
Independent broker/dealers who sell
premium funding programs.
insurance premium funding programs
(b) The 1972 amendment eliminated
and arrange credit thereon under
from § 2 2 0 .4 (k) the requirement that, to
§ 220.4(k) of regulation T are restricted
be eligible for the provisions of the sec­
from engaging at the same time in a
tion, a creditor had to be the issuer, or
general securities business except for the
a subsidiary or affiliate of the issuer, of
sale of shares in registered investment
programs which combine the acquisition
companies without insurance in the spe­
of both mutual fund shares and insur­
cial cash account under § 220.4(c).
ance. Thus the amendment permits an
§ 2 2 0 .1 2 7
In d e p e n d en t b r o k e r/d e a le r s
independent broker/dealer to sell such a
a rra n gin g cred it in co n n e ctio n with
program and to arrange for financing in
the sale o f in su ran ce p rem iu m fund*
that connection. In reaching such de­
in g p rogra m s.
cision, the Board again relied upon the
(a)
The Board’s September 5, 1972, earlier understanding that independent
broker/dealers who would sell such pro­
clarifying amendment to § 220.4(k) set
grams would not be engaged in trans­
forth that creditors who arrange credit
acting a general securities business.
for the acquisition of mutual fund shares
and insurance are also permitted to sell
(c) In response to a specific view re­
mutual fund shares without insurance
cently expressed, the Board agrees that
Title 12 — Banks and Banking
CHAPTER II— FEDERAL RESERVE
SYSTEM




under regulation T :
*
* * a broker/dealer dealing in special
insurance premium funding products can
only extend credit in connection with such
products or in connection with the sale of
shares of registered investment companies
under the cash accounts • * * (and) cannot
engage in the general securities business or
sell any securities other than shares • * *
(in)
registered
investment
companies
through a cash account or any other man­
ner involving the extension of credit.

(d)
There is a way, of course, as has
been indicated, that an independent bro­
ker/dealer might be able to sell other
than shares of registered investment
companies without creating any conflict
with the regulation. Such sales could be
executed on a “funds on hand” basis and
in the case of payment by check, would
have to include the collection of such
check. It is understood from industry
sources, however, that few if any inde­
pendent broker/dealers engage solely in
a “funds on hand” type of operation.
By order of the Board of Governors,
April 12,1973.
[seal]

Chester

B.

F

eldberg,

Assistant Secretary of the Board.
[FR Doc.73-8819 Filed 5-3-73;8:46 am]