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FED ER A L RESER VE BANK OF NEW YORK r Circular No.7 4 0 6 "1 L J u n e 11, 1974 -I CREDIT IN CONNECTION WITH INVESTMENT CONTRACTS Change in Effective Date of Amendment to Regulation T To All Brokers and Dealers, and Members of National Securities Exchanges, in the Second Federal Reserve District: Following is the text of a statement issued June 7 by the Board of Governors of the Federal Reserve System: T he B oard of G overnors o f the Federal Reserve System today postponed until January 2, 1975 the effective date of a regulatory amendment that will w ithdraw perm ission for brokers or dealers to sell certain kinds of investment contract securities on credit. T he action was taken to provide time for the Securities and E xchange C om m ission to receive and review com m ents on a proposal, announced today, to amend its regula tions governing the same types o f securities. T h e B oard ’s amendment, which was to becom e effective June 21, 1974, was announced last D ecem ber 14 and provides uniform treatment o f every security, m aking an extension of credit on any part o f a covered investment contract an extension o f credit on the entire contract. T he amendment relates prim arily to the arrangement of credit by brokers or dealers in the sale o f investment contract securities, such as a program to ow n and rent a condom inium unit or to ow n and feed cattle. T h e B oard had held that securities brokers and dealers generally are not permitted to arrange credit for the sale of such investment contract securities, but it had made an exception where the property sale and the management contract were separate items and the credit involved was connected only with the property. T he amendment rem oves that exception, and makes the extension o f credit on any part o f such an investment an extension o f credit on the whole. T his prevents securities brokers and dealers from arranging for such credit unless collateral is supplied meeting regulatory requirements. Others may continue to sell such invest ment program s on credit. In submitting the amendment for publication in the Federal Register, the Board of Gov ernors made the following additional statement: O n page 34988 o f the Federal Register o f Decem ber 21, 1973, the B oard of G overn ors announced the addition, pursuant to the authority o f Section 7 o f the Securities and E xchange A ct o f 1934 (1 5 U .S .C . 7 8 g ), of a new paragraph ( 1 ) to § 220.6 o f Regulation T . T he effective date of the amendment wras to be June 21, 1974. T h e Securities and E xchange Com m ission has announced on June 7, 1974, proposed amendments to its regulations that w ould exem pt from Section 7 o f the Securities and E xchange A ct o f 1934 some o f the investment contracts which w ould be affected by the addition of paragraph ( 1 ) to § 2 2 0 .6 o f R egulation T . In order to provide the Com m ission with adequate time for review of com m ents received on its proposal, the B oard of G overnors hereby announces that the effective date o f paragraph ( 1 ) § 220.6 is postponed until January 2, 1975. Enclosed is a copy of the revised amendment; additional copies will be furnished upon request. A lfred H a ye s , President. Board of Governors of the Federal Reserve System CREDIT B Y BROKERS AND DEALERS ( A M E N D M E N T T O R E G U L A T IO N T E ffective January 2, 1975, section 220.6 is amended by adding a new paragraph (1 ) thereto, to read as fo llo w s: S E C T I O N 220.6— C E R T A I N T E C H N IC A L D E T A IL S ( 1 ) C red it related to p o r tio n o f a security. Credit for the purpose o f purchasing or carry ing any part of an investment contract security (fo r example, but not limited to, the cattle ow nership portion o f a program to ow n and feed cattle, or the condom inium ownership part o f a program to o w n and rent a unit C through a rental pool or otherw ise) shall be deemed to be credit on the entire security. I PR IN T E D I N N E W YORK *
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