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FEDERAL R E S E R V E BANK O F N E W YORK r Circular No. 7 2 2 9 *1 u September 11, 1973 J CREDIT IN CONNECTION W ITH INVESTMENT CONTRACTS Extension of Time for Comment on Proposed Amendment to Regulation T To A ll Brokers and Dealers, and Members of National Securities Exchanges, in the Second Federal Reserve D istrict: Following is the text o f a statement issued September 10 by the Board o f Governors o f the Federal Reserve System: The Board of Governors of the Federal Reserve System today granted requests for additional time for com ment on a proposed amendment of the Board’s Regulation T — extension of credit on securities by brokers or dealers— that would withdraw permission for brokers or dealers to sell certain kinds of investment contracts on credit. The investment programs in question involve sales of property together with a separate management contract. Examples include sales of cattle herds, citrus groves and a type of resort condominium where the purchaser buys a hotel room but agrees to rent it for part of each year, through centralized management. The Board announced the proposed amendment to Regulation T on July 5, inviting comment through August 10. Extension of the period of comment was requested in a number of cases, particularly because the matter is also under consideration by the Securities and Exchange Commission. The Board has therefore extended the period for comment through September 25, 1973. For your convenience, the text o f the proposed amendment to Regulation T, as contained in our Circular No. 7188, dated July 18, 1973, is reprinted below. Comments thereon should be sub mitted by September 25 and may be sent to our Regulations and Bank Analysis Department. A lfred H a y e s , (Reg T) President. CREDIT BY BROKERS AND DEALERS Credit in Connection with Investment Contracts Pursuant to authority of section 7 of the Securities Exchange Act of 1934 (15 U.S.C. 78g) notice is here by given that the Board of Governors proposes to add paragraph (1 ) to §220.6 of Regulation T, “ Credit by Brokers and Dealers” (12 CFR 220.6) to provide that credit extended on any part of an investment contract will be deemed to be extended on the whole security. The proposed new paragraph is set forth below: SECTION 220.6— C E R TA IN TE C H N IC A L D E TA ILS ♦ * * (1 ) In vestm en t con tract secu rities. Credit for the purpose of purchasing or carrying any part of an in vestment contract security (for example, the cattle ownership portion of a program to own and feed cattle, or the condominium ownership part of a program to own and rent a unit through a rental pool) shall be deemed to be credit on the entire security. The purpose of the proposed amendment is to negate previous Board interpretations which stated that broker/ dealers would not be deemed to be arranging credit which they could not extend, as prohibited by §220.7(a) of this Part, when they sold investment contracts which included credit extended solely on the real estate or chattel part of the contract. If adopted, this amendment will provide uniform treatment, for credit purposes, of every security as an indivisible whole in a manner consistent with that fol lowed by the Securities and Exchange Commission in its area of regulation. Interested persons are invited to submit relevant data, views, or arguments concerning this proposal. Any such material should be submitted in writing to the Secretary, Board of Governors of the Federal Re serve System, Washington, D. C. 20551, to be received not later than August 10, 1973. Such material will be made available for inspection and copying upon request, except as provided in §261.6 (a ) of the Board’s Rules Regarding Availability of Information. This notice is published pursuant to section 553(b) of Title 5, United States Code, and §262.2(a) of the Rules of Procedure of the Board of Governors of the Federal Reserve System (12 CFR 262.2(a)). By order of the Board of Governors, July 3, 1973.
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