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FEDERAL RESERVE BANK OF NEW YORK [ Circular No. 9116 "1 July 30, 1981 MARGIN REGULATIONS Comment Invited on Proposals to Amend Regulations G, T and U for the Purpose of Simplifying and Modernizing the Margin Regulations To All Banks, Brokers and Dealers, Members of National Securities Exchanges, and Persons Extending Securities Credit, in the Second Federal Reserve District: The Board of Governors of the Federal Reserve System has invited comment on a second set of proposals to amend its margin regulations (Regulations G, T, and U) in order to simplify, and reduce the regulatory burden of compliance with, those regulations. The first set of proposals were sent to you with our Circular No. 9098, dated July 1, 1981. The following is quoted from the text of the statement issued by the Board of Governors in announcing these proposals: Revision of the Board’s margin regulations is part of the Board’s Regulatory Improvement Project, established in 1978, in which the Board is examining all of its regulations, with the objectives of simplifying them and of reducing the burden of compliance wherever possible. The Board proposed, in addition to the amendments suggested in June, the following further principal changes in its margin rules: 1. Regulation T would be amended to reduce the number of types of securities and other accounts subject to Regulation T from eleven to seven and to restructure the accounts along functional lines. Four of the accounts would be used for public customer transactions and three for transactions between industry members. 2. The terminology of Regulation T would be revised to prescribe the amount of margin required rather than the maximum loan value of securities used as collateral. This would conform to the terminology generally used by the securities industry. 3. The definition of “ indirectly secured’’ margin loans in Regulations U and G would be amended to achieve more objective standards. This action would affect principally lending arrangements, by banks and insurance com panies with corporate borrowers, that contain restrictions on disposition of the borrower’s assets. 4. Regulation G would be amended to broaden the types of credit which may be extended by lenders subject to that regulation, chiefly insurance companies and credit unions. Printed on the following pages is the text of the Board’s proposals. Comments must be submitted by September 15, and may be sent to our Consumer Affairs and Bank Regulations Department. A nthony M. S olom on, President. Title 12—Banks and Banking CHAPTER II—FEDERAL RESERVE SYSTEM SUBCHAPTER A—BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Regulations G, T and U [Docket No. R-0362] Part 207—Securities Credit By Persons Other than Banks, Brokers, or Dealers Part 220—Credit By Brokers and Dealers Part 221—Credit By Banks For the Purpose of Purchasing or Carrying Margin Stocks extensions of securities credit to public lenient restrictions applicable to banks customers would be recorded in this under Regulation U. In addition, consolidated General Account. Regulations G and U would be amended 12 CFR Parts 207, 220, and 221 to permit consolidation of loans secured 2. Segregated Equity Account. This [Docket No. R-0362; Regulations G, T, account would contain public customer by convertible bonds with other and U] transactions currently described in one regulated loans. This action would subdivision of the Special Miscellaneous parallel a previously announced Securities Credit by Persons Other consolidation proposal for Regulation T. Account (12 CFR 220.4(f)(6)) and Than Banks, Brokers, or Dealers; commonly known as SMA transactions. DATE: Comments should be received o n Credit by Brokers and Dealers; Credit The following types of credit would be by Banks for the Purpose of or before September 15,1981. permitted to be recorded in a Segregated Purchasing or Carrying Margin Stocks ADDRESS: Comments, which should refer Equity Account: (i) dividends and to Docket No. R-0362, may be mailed to interest payments; (ii) deposits not AGENCY: Board of Governors of the the Secretary, Board of Governors of the required by Regulation T; (iii).net Federal Reserve System. Federal Reserve System, 20th Street and proceeds released by a sale of ACTION: Proposed amendments. Consitution Avenue, NW., Washington, securities; and (iv) transfer of credit D.C. 20551 or delivered to RoomB-2223 available because of the increase in loan S u m m a r y : The Board of Governors is between 8:45 a.m. and 5:15 p.m. inviting comment on a second set of value of securities in the General Comments received may also be proposals to simplify and reduce the Account. Although the SMA has a long inspected at RoomB-1122 between 8:45 history of use for the purposes indicated, regulatory burden of its margin regulations, Regulations T, U and G (12 and 5:15 p.m., except as provided in the Board questions whether, in fact, the CFR 220, 221 and 207). The first group of section 261.6(a) of the Board's Rules type of credits for which it is now used Regarding Availability of Information proposed amendments was published could as easily be accommodated in the for comment in the Federal Register on (12 CFR 261.6(a)). Cash Account. Accordingly, comment is June 24,1981 (46 FR 32592). In this FOR FURTHER INFORMATION CONTACT: specifically invited as to justifications second group of amendments the for retaining the SMA account (to be Laura Homer, Division of Banking following changes are proposed: renamed the Segregated Equity Supervision and Regulation (202) 4521. Amend Regulation T to reduce the Account), including what, if any, 2781, or Robert Rewald, Division of adverse effects would result fromits number of accounts and restructure Research and Statistics (202) 452-3637, them along functional lines; increase elimination. Comment is also requested Board of Governors of the Federal as to what, if any, problems might arise types of firms that may offer certain Reserve System, Washington, D.C. accounts; permit dealers in OTC margin 20551, or Mindy R. Silverman (212) 791- if the SMA is eliminated and the securities to obtain credit from other 5032 or James M. McNeil (212) 791-5914, previously proposed minimum level adjustment [46 FR 32953] is applied to broker/dealers and make special Federal Reserve Bank of New York. the Cash Account. provision for jointly-owned clearing SUPPLEMENTARY INFORMATION: Account firms. 3. Cash Account. This would be consolidation. The 11 accounts currently 2. Change the terminology of substantially identical to the present required by Regulation T would be Regulation T when referring to the Special Cash Account (12 CFR 220.4(c)). consolidated into 7 accounts along amount of credit that can be extended A Cash Account is used for the functional lines. Four of these accounts by a broker/dealer to “margin/equity” would be used for public customer purchases and sales of securities that are bona fide cash transactions. Credit from “maximum loan value/adjusted transactions and three for transactions is extended in the account only for debit balance.” between industry members. The four clearing and settlement, if at all. 3. Revise the definition of “indirectly public customer transaction accounts secured” in Regulations U and G to 4. Non-securities Credit Account. This would be as follows: incorporate more objective standards. account would be used for transactions 4. Amend Regulation G to permit Gin commodities and foreign exchange 1. General Account. This account lenders to extend both regulated and and for the extension or maintenance of would consolidate the present General nonregulated credit to the same non-purpose credit, i.e. credit that is not Account and the two bond accounts. It borrower. This action would remove to be used to purchase, carry, or trade in would contain margin stock, margin restrictions which are no longer believed bonds, including convertible bonds, and securities. Currently, commodity transactions are effected in the Special to be necessary and would parallel more exempted securities. Virtually all FEDERAL RESERVE SYSTEM P R I N T E D IN NEW YOR K , FROM F E D E R A L R E G I S T E R , VOL. 46, NO. 139 2 Commodity Account (12 CFR 220.4(e)) and foreign exchange transactions and non-purpose credits are effected in the Special Miscellaneous Account (12 CFR 220.4(f)). The accounts that would be used for transactions with other brokers or dealers are as follows: 5. Market Functions Account. This account would consolidate the present provisions for special credit on transactions contributing to efficient and orderly markets. The account would combine the Specialist Account (12 CFR 220.4(g)), Special Arbitrage Account (12 CFR 220.4(d)), and the provisions in the Special Miscellaneous Account (12 CFR 220.4(f)) for extensions of credit to oddlot dealers and the underwriting or distribution of securities. In addition, this account would include a new provision for special credit for market in OTC margin securities comparable to the provisions in Regulation U that permit such loans by banks (12 CFR 221.3(w)). The current inability of a dealer in OTC margin stock to get special credit from another broker/ dealer is a burden for any dealer who clears transactions through another broker/dealer and wishes to finance the dealer inventory with the clearing broker. 6. Omnibus Account. This account would contain the same transactions as the present Special Omnibus Account (12 CFR 220.4(b)). In addition it would be amended to permit broker/dealers who are not members of exchanges to carry these accounts. 7. Broker-Dealer Credit Account. This account would be a consolidation of those provisions of the Special Miscellaneous Account that have not been incorporated into either the Market Functions Account, the Non-securities Credit Account or the Segregated Equity Account. The account would consolidate the present provisions for credit used to finance capital contributions to broker/ dealers, delivery against payment transactions between broker/dealers and credit extended to broker/dealers in emergency circumstances. In addition, this account would permit financing on a special basis by a broker/dealer clearing firm which is owned jointly by a group of broker/dealers. Currently, transactions processed by a jointlyowned clearing firm for its owners are subject to the restrictions in Regulation T on credit to customers, whereas a firm that clears its own transactions is not subject to Regulation T restrictions on those transactions. Two accounts presently contained in Regulation T would be deleted. These are the Special Subscription Account (12 CFR 220.4(h)) and the Special Insurance Premium Funding Account (12 CFR 220.4(k)). It appears that at the present time these accounts are rarely used and may no longer be necessary. Unless there are substantial reasons for their continued existence, both of these accounts would be deleted from the regulation in the interest of simplification. Terminology. The Board proposes to rewrite Regulation T to change the terminology when describing the amount of credit that can be extended by a broker/dealer to “margin/equity” from “maximum loan value/adjusted debit balance." It has been suggested that the terminology currently employed in the regulation is unnecessarily complex and confusing and is not the terminology used by the securities industry. The same regulatory effect can be achieved by placing the structure and language of the regulation in a margin/equity framework in which the regulatory status of an account would be determined by comparing the required margin to the equity (or net worth) of the account. The regulatory text to effect this recommendation will be published at a later date. However comments are requested on the proposal. Indirect security. The Board is proposing amendments to Regulations U and G to narrow the definition of “indirectly secured.” The present definition has caused undue regulatory burden since it is premised on a subjective standard that is difficult to interpret and administer. It is expected that many of the interpretive problems that now exist will be mooted if the Board adopts its proposal to eliminate nonmargin stock from the collateral test in Regulation U (46 F.R. 32592). However, to further reduce the complexity of interpretation engendered by the "indirect security" concept, the Board is proposing a more objective definition. Restrictions on Regulation G-lenders. Lenders subject to Regulation G are currently prohibited fromextending regulated loans and non-purpose loans to the same borrower if the non-purpose loan is over $5,000 and both loans are secured by the same margin securities. In addition, G-lenders are prohibited fromextending purpose credit on assets other than margin equity securities concurrently with or subsequent to an extension of purpose credit secured by margin equity securities to the same borrower. The proposed amendments would permit G-lenders to extend both non-purpose and purpose credit secured by assets other than margin equity securities concurrently with the extension of regulated purpose credit. This would provide a regulatory structure comparable to that presently applicable to banks under Regulation U. In addition, the present provision of Regulation G requiring segregation of purpose loans secured by convertible bonds fromother regulated loans would be eliminated. This action would parallel the Board’s proposal concerning Regulation T that was published on June 24.1981. A similar change will be made in Regulation U. Accordingly, pursuant to sections 7 and 23 of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78g, 78w), the Board proposes to amend Regulations T, U and G (Parts 220, 221 and 207 respectively) as follows: PART 220— CREDIT BY BROKERS AND DEALERS A. Section 220.4 of Regulation T is amended as follows: § 220.4 Special Accounts [Amended] 1. In § 220.4 paragraphs (a) (3) and (4) are revised to read as follows: (a) General Rule. * * * (3) A special account established pursuant to this section shall not be used in any way for the purpose of evading or circumventing any of the provisions of this part. If a customer has with a creditor both a general account and one or more such special accounts, the creditor shall treat each such special account as if the customer had with the creditor no general account. (4) The only other conditions to which transactions in such special accounts shall be subject under the provisions of this part shall be such conditions as are specified in the appropriate paragaph of this section and in §§ 220.2, 220.6, 220.7, or 220.8. * * * * * 2. Existing paragraph (b) is removed and paragraph (c) is relettered as paragraph (b) and the word “Special" is removed fromthe title of the account so it now reads “Cash Account." 3. Existing paragraphs (d), (e), (f) and (g) are removed and the following new paragraphs (c), (d), (e), (f) and (g) are added: * * * * * (c) Segregated Equity Account. In a segregated equity account a creditor may receive fromor for any customer deposits derived from: (1) Dividend and interest payments (2) Cash resulting from a maintenance margin call or other requirement of a self-regulatory organization which are not required by this Part. (3) Proceeds of a sale of securities that may be released under provisions of § 220.3. (4) Excess loan value of securities in a general account. or pay out to any customer or transfer to any other account any credit balance. (d) The Non-securities Credit Account. In a non-securities credit account a creditor may: (1) Effect and carry transactions in commodities. (2) Effect and carry transactions in foreign exchange. 3 * _ second security together with an (3j Extend and maintain credit contravention of any rule of the offsetting sale at or about the same time without collateral or on any collateral exchange or association and the credit of such second security for the purpose whatever for any purpose other than has the approval of appropriate of taking advantage of a disparity in the purchasing or carrying or trading in committees of the exchange or prices of the two securities, except that securities, provided that the association, or requirements of § 220.7(c) are met. (B) The lender as well as the borrowerwhen the security purchased is solely a (e) Omnibus Account. In a special is a creditor as defined in § 220.2(b), the due bill for, or other evidence of the right to receive only the security that is omnibus account, a creditor may effect subordinated loan agreement has the sold, and the security that is sold is and finance transactions for a member approval of the appropriate Examining trading as a when-issued security, such of a national securities exchange or a Authority as defined in Securities and period shall be 180 calendar days. broker or dealer registered with the Exchange Commission Rule 15c3(2) Clear and finance for a specialist Securities and Exchange Commission l(c)(12) (12 CFR 240.15c3-l(c)(12)) and who is a member of a national securities under section 15 of the Securities such examining authority is satisfied, in exchange such member’s securities Exchange Act of 1934 (15 U.S.C. 78o) the case of a borrower who would be transactions or transactions of any joint fromwhom the member receives (1) considered a customer of the lender account in which all participants, or all written notice, pursuant to a rule of the apart from the subordinated loan, that participants other than the creditor, are Securities and Exchange Commission the loan will not be used to increase the registered and act as specialists. concerning the hypothecation of amount of dealing in securities for the (i) A specialist in options is permitted customers’ securities by brokers or account of the borrower, his firm or to establish in this account on a sharedealers (Rule 8c-l (17 CFR 240.8c-l) or corporation or an affiliated corporation for-share basis a long or short position Rule 15c2-l (17 CFR 240.15c2-l)), to the of such Firmor corporation. in the securities underlying the options effect that all securities carried in the (iii) For the purpose of paragraphs in which the specialist makes a market, account will be carried for the account (f)(2) (i) and (ii) of this section, the term and a specialist in securities other than of the customers of the broker or dealer "affiliated corporation" means a options is permitted to purchase or write and (2) written notice that any short corporation all the common stock of options overlying the securities in which sales effected in the account will be which is owned directly or indirectly by the specialist makes a market,' only short sales made in behalf of the the member firm or general partners and under one or more of the following customers of the broker or dealer other employees of the firm, or by the member conditions (such positions are referred than his partners. to in this paragraph as “permitted offset (f) Broker-dealer Credit Account. In a corporation or holders of voting stock and employees of the corporation and positions’’): broker-dealer credit account, a creditor an appropriate committee of the (A) The account holds a short options may: position which is “in or at the money" (1) With the approval of any regularly exchange has approved the member firm’s or member corporation’s and is not offset by a long or short constituted committee of a national affiliation with such affiliated option position for an equal or greater securities exchange having jurisdiction corporation. number of shares of the same underlying over the business conduct of its (3) Purchase any security from any security which is “in the money;” members, extend and maintain credit to customer who is a member of a national (B) The account holds a long option meet the emergency needs of any securities exchange or a broker or position which is “in or at the money” creditor: (2) (i) Extend and maintain credit, (A) dealer registered with the Securities and and is not offset by a long or short to or for any partner of a firm which is a Exchange Commission under section 15 option position for an equal or greater of the Securities Exchange Act of 1934 number of shares of the same underlying member of a national securities security which is "in the money;” (15 U.S.C. 78o), or sell any security to exchange to enable such partner to (C) The account held a short option such customer: Provided, That the make a contribution of capital to such position against which an exercise firm, or to purchase stock in an affiliated creditor acting in good faith purchases or sells the security for delivery, against notice was tendered; corporation of such firm, or (B) to or for (D) The account held a long option full payment of the purchase price, as any person who is or will become the position which was exercised; holder of stock of a corporation which is promptly as practicable in accordance (E) The account holds a net long with the ordinary usage of the trade; a member of a national securities position in a security (other than an (4) If the creditor is a clearing and exchange to enable such person to option) in which the specialist makes a purchase stock in such corporation, or to servicing broker/dealer, owned jointly or individually by other creditors, effect market; or, purchase stock in an affiliated (F) The account holds a net short and finance transactions of any of its corporation of such corporation: position in a security (other than an owners. provided the lender as well as the (g) The Market Functions Account. In option) in which the specialist makes a borrower is a partner in such member market. a market functions account a creditor firm or a stockholder in such member (ii) The maximum loan value of may: corporation, or the lender is a firm or a securities which may be used as stockholder in such member (1) Effect and finance for any collateral in the account shall be: corporation, or the lender is a firm or customer bona fide arbitrage (A) No more than 100 percent of the corporation which is a member of a transactions in securities. For the current market value of any long national securities exchange and the purpose of this paragraph, the term in a security in which the borrower is a partner in such firm or a “arbitrage” means (i) a purchase or sale position specialist makes a market, a whollystockholder in such corporation: of a security in one market together with owned margin security, or an exempted (ii) Extend and maintain subordinated an offsetting sale or purchase of the security issued by the United States credit to another creditor for capital same security in a different market at as Government or an agency thereof; purposes: Provided, That nearly the same time as practicable, for (B) 75 percent of the current market (A) Either the lender or the borrower the purpose of taking advantage of a value of any permitted offset position is a firm or corporation which is a difference in prices in the two markets, that is purchased and held in the member of a national securities or (ii) a purchase of a security which is, account under the terms of paragraph exchange or national securities without restriction other than the (g)(2) of this section; association, the other party to the credit payment of money, exchangeable or (C) The maximum loan value is an affiliated corporation of such firm convertible within 90 calendar days prescribed by the Board in § 220.8 (the or corporation, the credit is not in following the date of its purchase into a Supplement to Regulation T) when a 4 security purchased and held in the account does not qualify as a specialist or permitted offset position. (iii) The amount to be included in the adjusted debit balance of the account shall be: (A) Not less than 100 percent of the current market value of either a security sold short or an option written where such position qualifies as a specialist transaction; (B) 125 percent of the current market value of any permitted offset position sold short or written in the account under the terms of paragraph (g)(2) of this section; (C) The amount prescribed by the Board in § 220.8 (the Supplement to Regulation T) when a security sold short in the account does not qualify as a specialist or permitted offset position plus, for a short position in a security other than an option, the current market value of the security sold short. (iv) Except as required by paragraph (g)(2)(vi) of this section, on any day when additional margin is required as a result of transactions in the account, the creditor shall issue a call for a deposit of cash or securities having loan value and may allow the specialist a maximum of five full business days to make a deposit sufficient to meet the call. To prevent "free-riding” in the account, a creditor who has not obtained this deposit (and is therefore required to liquidate sufficient securities to meet the call) is prohibited for a 15 day period from extending any further credit in the account to finance transactions in securities in which the specialist is not registered to make a market. The acquisition or liquidation of a permitted offset position shall not be subject to this “free-riding” penalty. The restriction on "free riding” shall not apply to any national securities exchange adopting a “free-riding” rule applicable to specialists which has been approved by the Securities and Exchange Commission. (v) On any day when a specialist requests a withdrawal of cash or securities from the account, the creditor shall compute the status of the account for non-specialist securities positions in accordance with the provisions of § 202.8 (the Supplement to Regulation T), permitted offset positions in accordance with the provisions of paragraphs (g)(2)(ii) and (g)(2)(iii), and specialist positions on a "good faith” basis. Withdrawals shall be permitted to the extent that the adjusted debit balance in the account would not exceed the total value of all of the collateral held in the account after the withdrawal has been made. (vi) On any day when the account would liquidate to a deficit, the creditor shall not extend any further credit in the account, and shall issue a call for additional cash or collateral which shall be met by noon of the following business day. In the event sufficient cash or collateral is not deposited the creditor shall liquidate existing positions in the account. (vii) The provisions of this paragraph are available to a specialist who is a member of a national securities exchange which submits to the Board of Governors of the Federal Reserve System reports suitable for supplying current information regarding the use of specialist Credit. (viii) For the purpose of this paragraph: (A) The term “joint account” means an account in which the creditor may participate and which by written agreement permits the commingling of the security positions of the participants and provides for a sharing of profits and losses from the account on some predetermined ratio; (B) The term "underlying security” means the security which will be delivered upon exercise of the option and does not include a security convertible into the underlying security; (C) The term “overlying option” means (1) a put option purchased or a call option written against an existing long position in a specialist’s or marketmaker’s account, or (2) a call option purchased or a put option written against a short position in a specialist’s or market-maker’s account. (D) The term "in or at the money", with respect to a call option, indicates that the current market price of the underlying security is not more than one standard exercise interval below the exercise price of the option, and, with respect to a put option, that the current market price of the underlying security is not more than one standard exercise interval above the exercise price of the option. (E) The term “in the money”, with respect to a call option, indicates that the current market price of the underlying security is not below the exercise price of the option and, with respect to a put option, that the current market price of the underlying security is not above the exercise price of the option. (3) Effect and finance, for any member of a national securities exchange who is registered and acts as an odd-lot dealer in securities on the exchange, such member’s transactions as an odd-lot dealer in such securities, or effect and finance, for any joint venture in which the creditor participates, any transactions in any securities of an issue with respect to which all participants, or all participants other than the creditor, are registered and act on a national securities exchange as odd-lot dealers; (4) Effect transactions for and finance any joint venture or group in which the creditor participates and in which all 5 participants are dealers (whether such participants be acting jointly or severally), or any member thereof or participant therein, for the purpose of facilitating the underwriting or distributing of all or part of an issue of securities (i) not through the medium of a national securities exchange, or (ii) the distribution of which has been approved by the appropriate committee of a national securities exchange; * * * * * 4. Paragraphs (h), (i), (j) and (k) are removed. PART 221—CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCKS B. Section 221.3 of Regulation U is amended as follows: 1 Section 221.3(c) is revised to read as follows: § 221.3 * M iscellaneous provisio ns. * * * * (c) Indirectly secured. The term “indirectly secured" includes any arrangement with the customer under which the customer’s right or ability to sell, pledge, or otherwise dispose of margin equity securities owned by the customer is in any way restricted as long as the credit remains outstanding or under which the exercise of such right is or may be cause for acceleration of the maturity of the credit. The foregoing shall not apply: (1) If, following application of the proceeds of the credit, not more than 25 percent of the fair market value of the assets subject to the arrangement are margin equity securities; (2) To a lending arrangement that permits acceleration of maturity of the credit as a result of a specified event of default or the renegotiation of the terms of another credit to the same customer by another lender that is not an affiliate1 of the bank; or (3) If the margin equity securities are held by the bank only in the capacity of custodian, depositary, or trustee, or under similar circumstances, and the bank in good faith has not relied upon such margin equity securities as collateral in the extension or maintenance of the particular credit. * * # ★ 2. Existing paragraphs (r) and (t) are removed; existing paragraph (s) is redesignated as paragraph (r); and existing paragraphs (u) through (z) are redesignated as paragraphs (s) through M- _______ 1For this purpose the term “affiliate” shall mean a bank holding company of which the bank is a subsidiary within the meaning of the Bank Holding Company Act of 1956. as amended, or any other subsidiary of such bank holding company, or any other corporation, business trust, association or other similar organization which is an affiliate as defined in section 2(b) of the Banking Act of 1933 (12 U.S.C. 221a). § 221.1 [Amended] C. Section 221.1(a) is amended by removing all the words at the end of paragraph (a)(1) following the words “as described in § 221.3(s),". Section 221.2 is amended by removing the phrase “or in § 221.3(t)” (and the commas before and after the phrase) in the introductory sentence of the section after the words “the limitations prescribed therein." PART 207— SECURITIES CREDIT BY PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS D. Section 207.1 of Regulation G is amended as follows: § 207.1 General rule. [Amended] 1. Paragraph (c) is amended to remove all words at the end of the paragraph after the words “or as determined by the lender in good faith for any collateral other than margin securities:” and beginning with “Provided, That.” 2. Paragraph (d) is removed in its entirety and paragraphs (e) and (f) are redesignated as (d) and (e) respectively 3. Paragraph (g) is redesignated as paragraph (f) and revised to read as follows: * * * * * (f) Combining purpose credit extended to the same customer. For the purpose of this part, except for a credit subject to § 207.4(a)(2), the aggregate of all outstanding purpose credit extended to a customer by a lender shall be considered a single credit and all the collateral securing such a credit, whether directly or indirectly, in whole or in part, shall be considered in determining whether the credit complies with this part. 4. Existing paragraphs (h) and (i) are removed and paragraph (j) is redesignated as paragraph (g) and revised to read as follows: * * * * * (g) Withdrawals and substitutions of collateral. Except as permitted by § 207.4(a). a lender shall not at any time permit any withdrawal or substitution of collateral, if, after completion of the transaction, there would be any increase in the amount by which the credit exceeded the maximum loan value of the collateral. * * * * * 5. New paragraphs (h) and (i) are added to read as follows: * * * * * (h) Purpose and nonpurpose credit extended to the same customer. (1) The lender shall identify all the collateral used to meet the requirements of § 207.1(c) (the entire credit being considered a single credit and collateral being similarly considered) and shall not and regulatory burdens imposed upon cancel the identification of any portion lenders by Regulation T (broker thereof except in circumstances that lending), Regulation U (bank lending), would permit the withdrawal of that and Regulation G (lending by persons portion. Such identification may be other than brokers or banks). made by any reasonable method. The simplification of margin (2) For any credit extended to the regulations that is being proposed at this same customer that is not subject to time will provide benefits in the form of § 207.1(c) the lender shall in good faith overall clarity and consistency of require as much collateral not so treatment across margin lenders. For identified as would be required (if any) example, two basic changes have been if the lender held neither the proposed for Regulation T: one calling indebtedness subject to § 207.1(c) nor for consolidation and reorganization of the identified collateral. (i) Purpose credit secured by margin the entire structure of margin accounts securities and other collateral. A lender that the Board requires and the other recommending that the terminology may extend credit for the purpose of employed in the Regulation be changed purchasing or carrying margin securities to correspond to existing recordkeeping secured by collateral other than margin practices of the brokerage industry. securities, and. in the case of such Also, the number of accounts is reduced credit, the maximum loan value of the from eleven to seven and, after these collateral shall be as determined by the changes, all public customer lender in good faith. transactions will be recorded in four E. Section 207.2(i) is revised to read asnew accounts and transactions between follows: brokers and other market professionals—including credit § 207.2 Definitions. extensions to market makers in over* * * * * the-counter margin stocks—will be (i) Indirectly secured. The term recorded in three new accounts. "indirectly secured” includes any The two recommended changes in arrangement with the customer under Regulations G and U are in the nature of which the customer’s right or ability to clarifying or relaxing amendments. The sell, pledge, or otherwise dispose of proposed amendment that defines margin equity securities owned by the “indirectly secured” margin lending is customer is in any way restricted as expected to greatly reduce the need for long as the credit remains outstanding corporate borrowers to seek and Board or under which the exercise of such right staff to issue opinions on the is or may be cause for acceleration of applicability of margin regulations to the maturity of the credit. certain unsecured loan agreements. The The foregoing shall not apply: other proposed changes to Regulations G and U involve relaxation of the (1) if, following application of the Board’s rules for consolidating credit by proceeds of the credit, not more than 25 purpose and by type of security. These percent of the fair market value of the changes bring about parallel regulatory assets subject to the arrangement are treatment between banks and G-lenders margin equity securities; for purpose and nonpurpose borrowing (2) to a lending arrangement that by the same customer and, because the permits acceleration of muturity of the quantitative limitations for non-purpose credit as a result of a specified event of loans would no longer apply, would default or the renegotiation of the terms allow G-lenders (for example, credit of another credit to the same customer unions and insurance companies) to by another lender that is not an expand their nonpurpose lending affiliate 2 of the lender; or activities. In addition, the proposed (3) if the margin equity securities are changes relax various collateral held by the lender only in the capacity segregation rules to achieve of custodian, depositary, or trustee, or comparability between provisions of under similar circumstances, and the Regulations G and U and the newly lender in good faith has not relied upon proposed consolidated account structure such margin equity secruities as of Regulation T. collateral in the extension of maintenance of the particular credit. By order of the Board of Governors of the * * * * * Federal Reserve System, July 8, 1981. Initial Regulatory Flexibility Analysis The Board of Governors of the Federal Reserve System is requesting comment on additional proposed changes to its margin regulations. These changes are the second part of a planned package of proposed amendments intended to simplify margin regulations, generally, and to reduce specific administrative 6 James McAfee, Assistant Secretary o f the Board. [FR Doc. 81-20698 Filed 7-20-81: 8:45 am] BILLING CODE 6210-01-M 2For this purpose the term "affiliate" shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the lender.
@FedFRASER