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FEDERAL RESERVE BANK OF N EW YORK February 19, 1969 Proposed Amendment of Regulation T To Brokers, Dealers, and Members of National Securities Exchanges in the Second Federal Reserve District: Printed below is an excerpt from the Federal R egister of February 15, containing the text of the proposed amendment o f margin Regulation T of the Board of Governors of the Federal Reserve System, which would extend the regulation to cover certain securities that are not registered on a national securities exchange. Comments on the proposed amendment may be submitted by March 17, 1969 and should be sent to our Bank Examinations Department. Additional copies of the texts of the proposed amend ments of this regulation and of the Board’s margin Regulations G and U will be furnished upon request. A lfred H ayes, President. [1 2 CFR Part 2 20 ] [R eg. T ] NATIO NAL SECURITIES EXCHANGES Credit by Brokers, Dealers, and Members Pursuant to the authority contained in the Securities Exchange Act of 1934 (15 U.S.C. 78g), as amended by Act of July 29, 1968 (Public Law 90-437; 82 Stat. 452), the Board of Governors of the Federal Reserve System is considering amending Part 220 (Regulation T) as set forth below in order to regulate the amount of credit that may be extended with re spect to certain securities that are not registered on a national securities exchange. Public Law 90-437 broadens the Board’s authority over stock market credit to cover “over-the-counter” (OTC) stocks. The legislation leaves to the Board the timing and selection of criteria for the implementation of OTC margin requirements. The proposed amendments to Regula tion T are principally designed to in clude in the regulation criteria under which the Board will select OTC stocks which would be subject to the margin and other requirements of the regula tion. Initially, such “OTC margin stock” would be stock, not traded on a national securities exchange, which the Board has determined to have the degree of na tional investor interest, the depth and breadth of market, the availability of in formation respecting such stocks and their issuers, and the character and per manence of the issuers, to warrant treat ment similar to stocks that are registered on such exchanges. Under the proposed regulatory frame work, any broker/dealer would be per mitted to lend his customers the amount the regulation permits (currently 20 per cent) against OTC margin stocks, but he could not borrow more than this against such stocks from a bank (with certain exceptions set forth in Part 221— Regulation U) or other lender unless he was rehypothecating his customers’ secu rities or was registered as an OTC mar ket-maker in the stock to be pledged, and such stock was being used in the per formance of his function as such a market-maker. In a related change, the definition of “creditor” would be broadened to cover any broker or dealer, whether or not a member of a national securities exchange or transacting a business in securities through the medium of such a member. A conforming change would be made in the special omnibus account provision (§ 220.4(b)) so that exempt credit, presently extended on their customers’ securities to. brokers or dealers who merely undertake to observe the require ments of Regulation T, would be limited in the future to those who are prepared to certify that they are actually sub ject to this part. Most firms borrowing under § 220.4(b) would not be affected. However, in the case of credit extended under this section to persons or firms who are not prepared to certify that they are actually subject to this part (regu lation T ), no substitutions of collateral would be permitted after 90 days from the adoption of this proposal; and such credit would be required to be extin guished within one year after that date, if the proposals are adopted. The proposal would also introduce to the regulation the term “regulated secu rity” which would encompass registered securities and OTC margin stock. Ac cordingly, regulated equity securities would be treated throughout this part as registered equity securities now are, with corresponding conforming changes as necessary or appropriate. The proposed amendments would also provide for a committee of a national securities association to extend the 5-day period, within which the required deposit must be made in connection with trans actions in the general (margin) account, corresponding to the procedure presently followed by a committee of a national securities exchange. It is also proposed that statements be obtained on a new form (Federal Reserve Form T -4) in connection with “non-pur pose” extensions of credit collateralized by regulated securities. In addition, the proposal would clarify that for the purpose of Part 220 it is immaterial whether a debt security is convertible, with or without considera tion, presently or in the future, into a regulated stock. This notice is published pursuant to section 553(b) of title 5, United States Code, and § 262.2(a) of the rules of pro cedure of the Board of Governors of the Federal Reserve System (12 CFR 262.2(a)). To aid in the consideration of this mat ter by the Board, interested persons are invited to submit, in writing, relevant data, views, or arguments. Such material should be submitted to any Federal Re serve Bank, to be received not later than March 17, 1969. Under the Board’s rules regarding availability of information (12 CFR Part 261), such materials will be made available for inspection and copy ing to any person upon request unless the person submitting the material requests that it be considered confidential. Dated at Washington, D.C., this 10th day of February 1969. By order of the Board of Governors. [s e a l] Sec. 220.1 220.2 220.3 220.4 220.5 220.6 220.7 220.8 R obert P. F o r r e s t a l, Assistant Secretary. S cope o f part. D efin ition s. G en eral a c cou n ts. S p ecial a c cou n ts. B orrow in g b y m em bers, brokers, an d dealers. C ertain te ch n ic a l d etails. M iscellaneou s p rovision s. S u p p lem en t. A u t h o r i t y : T h e p rov ision s o f th is P art 220 issu ed u n d er secs. 7 an d 8 (a ) o f th e S ecu ri ties E xch an ge A ct o f 1934 (15 U.S.C. 78g, 78h ( a ) ) as am en d ed b y P u b lic L aw 90-437 (82 Stat. 4 5 2 ). § 220.1 Scope o f part. This part is issued by the Board of Governors of the Federal Reserve System (hereinafter called the “Board” ) pur suant to the Securities Exchange Act of 1934 (called the “Act” in this part), par ticularly sections 7 and 8(a) thereof (15 U.S.C. 78g, 78h (a ), as amended), and ap plies to every dealer, including every member of a national securities exchange. § 220.2 Definitions. For the purposes of this part, unless the context otherwise requires: (a) The terms “person,” “member,” “broker,” “dealer,” “buy,” “purchase,” “sale,” “sell,” “security,” “equity secu rity,” and “bank” have the meanings given them in section 3(a) of the Act (15 U.S.C. 7 8 c (a )). (b) The term “creditor” means any broker or dealer including every member of a national securities exchange. (c) The term “customer” includes any person, or any group of persons acting jointly, (1) to or for whom a creditor is extending, or maintaining any credit, or (2) who, in accordance with the ordinary usage of the trade, would be considered a customer of the creditor. It includes, in case the creditor is a firm, any part ner in the firm who would be considered (vii) There are 500,000 or m ore shares o f § 220.3, all transactions in nonequity a custom er o f the firm if he were not' a partner, and includes any join t adven o f such stock outstanding in addition to securities, exem pted securities, and in ture in w hich a creditor participates and shares h eld beneficially by officers, d i oth er securities having no loan value in w h ich w ould be considered a custom er rectors, or beneficial owners o f m ore a general accoun t under the provisions o f §§ 220.3(c) and 220.8 (the Supple o f the creditor if the creditor were not th an 10 percent o f the stock, (viii) T he shares described in subdi m ent to Regulation T ) (except unissued a participant. (d ) T h e term “ registered secu rity” vision (vii) o f this subparagraph have a securities, short sales and purchases to m eans any security w hich (1) is regis m arket value in the aggregate o f at least cover sh ort sales, securities positions to offset short sales, an d contracts in volv tered on a national securities exch an ge; $10 m illion, (ix ) T h e m inim um average bid price ing an endorsem ent or guarantee o f any or (2) in consequence o f its having u n listed trading privileges on a national o f such stock, as determ ined by the put, call, or oth er o p tio n ), shall be in in. the appropriate special securities exch an ge is deemed, under the B oard in the latest m onth, is at least $10 cluded account provided for by § 220.4. During provisions o f section 12(f) o f the A ct per share, and (x ) T h e issuer had at least $5 m illion any period w hen such § 220.8 specifies (15 U.S.C. 781), to be registered on a n ation a l securities exch an ge; or (3) is of capital, surplus and undivided profits. that regulated equity securities shall (3) T h e B oard shall from tim e to time have no loan value in a general account exem pted by the Securities and E xch ange C om m ission from the operation o f section rem ove from the list described in sub- or special convertible debt security accoun t su bject to § 221.4 ( j ), any trans paragraph (2) o f this paragraph (e) 7 (c ) (2) o f the A ct (15 U.S.C. 7 8 g(c) (2 )) action consisting o f a purchase o f a se on ly to the extent necessary to render stocks th at cease to: (i) Exist or fo r w hich the issuer ceases curity other than a purchase o f a security la w fu l any direct or in direct extension to reduce or close out a short position or m ain ten an ce o f credit on such secu to exist, or (ii) M eet substantially, the provisions shall be effected in th e special cash rity o r any direct or in direct arrange m en t th erefor w hich w ould n ot have been o f subparagraph (1) o f this pa ra accoun t provided fo r by § 220.4(c) or in som e oth er appropriate special account u nlaw ful if such security h ad been a graph ( e ) . secu rity (oth er than an exem pted secu (4) T h e foregoin g notw ithstanding, provided fo r by § 220.4. (b) G en eral rule. (1) A creditor shall rity ) registered on a national securities th e B oard m ay, upon its own initiative, exch an ge. o r upon application by any interested n ot effect fo r or with any custom er in a (e) (1) T h e term “ O TC m argin stock ” party, om it or rem ove any stock th at is general account, special bond accoun t m eans stock, n ot traded on a national n ot traded on a national securities ex subject to § 220.4(i), or special con verti securities exchange, w hich the B oard o f ch a n ge from or add any such stock to ble debt security accoun t (som etim es re G overnors o f th e Federal Reserve S ys such list o f O TC m argin stocks if in the ferred to herein as “ special convertible tem has determ ined to have the degree ju dgm en t o f the Board, such action is security a ccou n t” ) su bject to § 220.4( j ) o f n ational investor interest, the depth necessary or appropriate in the public any transaction w hich, in com bination an d breadth o f m arket, the availability interest. w ith the oth er transactions effected in o f in form ation respecting the stock and (5) It shall be unlaw ful for any cred such account on the same day, creates its issuer, and the cha ra cter and per itor to make, or cause to be m ade, any an excess o f the adjusted debit balance m anen ce o f the issuer to w arrant such representation to the effect th at the in o f such accoun t over the m axim um loan treatm ent. clusion o f a security on such list o f O TC value o f the securities in such account, (2) T h e B oard will from tim e to tim em argin stocks is evidence th at th e B oard or increases any such excess, unless in publish a list o f O TC m argin stock as to or the Securities and E xch ange C om m is con n ection therewith the creditor o b w h ich the B oard has m ade the determ i sion has in any w ay passed upon the tains, as prom ptly as possible and in any n ation s described in subparagraph (1) o f merits o f, or given approval to, such event before the expiration o f 5 full busi this paragraph (e ). E xcept as provided security or any tran saction therein. Any ness days follow ing the date o f such in subparagraph (4) o f this paragraph statem ent, advertisem ent, or other sim i transaction, the deposit in to such (e ) , such stocks shall m eet the require lar com m u n ication contain in g a refer accoun t o f cash or securities in such ence to the B oard in con n ection w ith am ount th at the cash deposited plus the m en ts th at: (i) T h e stock is su bject to registration such stocks or such list shall constitute loan value o f the securities deposited equals or exceeds the excess so created u nder section 12(g) (1) o f the Securities such an unlaw ful representation. E xch a n ge A ct o f 1934 (15 U.S.C. 781(g) (f) T h e term “ regulated security” or the increase so caused. (2) E xcept as perm itted in this sub( 1 ) ) , or if issued by an insurance co m m eans any registered security or O TC paragraph, n o w ithdraw al o f cash or p a n y su bject to section 12(g) (2) (G ) (15 m argin stock. U.S.C. 781(g) (2) ( G ) ) , the issurer h ad at (g) T h e term “ exem pted security” regulated o r exem pted securities shall be permissible if the adjusted debit balance least $1 m illion o f capital an d surplus, has the m eaning given it in section 3 (a ) (ii) Five or m ore dealers, stand w ill o f the A ct (15 U.S.C. 78c(a) ( 1 2 )) , except o f the accoun t (w hether the general a c in g to, and do in fact, m ake a m arket in th at the term does n ot include a security coun t, the special bond accoun t subject su ch stock including m aking regularly w hich is exem pted by the Securities and to § 220.4(1) o r the special convertible security accoun t su bject to §2 2 0 .4 (j)) published bona fide bids and offers fo r E xchange Com m ission from the opera su ch stock fo r their ow n accounts, or the tion o f section 7 ( c ) ( 2 ) o f the A ct (15 w ould exceed the m axim um loan value stock is registered on a securities ex U.S.C. 78g(c> (2 )) on ly to the extent de o f the securities in such accoun t after ch a n g e th at is exem pted by the S ecu ri scribed in paragraph (d) (3) o f this such w ithdraw al. T h e exceptions are available on ly in the event n o cash or ties and E xchange Com m ission from section. (h ) T h e term “ n on-equity security” securities need to be deposited in such registration as a n ational securities ex ch a n g e pursuant to section 5 o f the A ct m eans any security oth er than an equity accoun t in conn ection w ith a transaction on a previous day and none would need security or an exem pted security. (15 U.S.C. 78e), to be deposited thereafter in connection (iii) T h ere are 1,500 or m ore holders § 220.3 General accounts. w ith any w ithdraw al o f cash or securities o f record o f the stock w ho are n ot o f (a) C on ten ts o f general accou n t. Allon the current day. T he permissible ex ficers, directors, or beneficial ow ners o f fin an cial relations between a creditor ceptions are (i) registered nonequity 10 p ercen t or m ore o f the stock, securities or exem pted securities held in (iv ) T h e issurer, or a predecessor in and a custom er, w hether recorded in one the general accoun t on M arch 11, 1968, interest, has been in existence fo r at least record or In m ore than one record, shall be included in and be deem ed to be part and continuously thereafter m ay be 3 years, o f the custom er’s general accou n t w ith w ithdraw n upon the deposit in the a c (v) T h e stock has been publicly traded the creditor, except th at the relations coun t o f cash (or regulated equity secu fo r at least 6 m onths, and w hich § 220.4 perm its to be included in rities coun ted at their m axim um loan (vi) D aily quotations for both bid and any special accoun t provided fo r by that value) at least equal to the “ retention asked prices fo r the stock are con tin u section m ay be included in the ap requirem ent” o f such w ithdraw n secu ously available to the general pu blic; propriate special account, and all trans rities, or (ii) except as provided in sub actions in com m odities, and, except to division (i) o f this subparagraph, securi an d shall m eet three o f the fou r addi ties having loan value in the general th e extent provided in paragraph (b) (2) tion al requirem ents th at: 2 account, the special bon d accoun t subject tered equity security eligible fo r a special n ection w ith his endorsem ent or guar to § 220.4(i), or the special convertible convertible security accou n t pursuant to antee o f any put, call or oth er option ; security accoun t su bject to § 220.4(j) § 220.4(j) shall have loan value in a m ay be w ithdraw n upon the deposit in general accoun t only if held in the a c and deducting th erefrom the sum o f the follow in g item s: such accoun t o f cash or securities having cou n t on M arch 11, 1968, and con tin u (6) T h e net credit balance, if any, o f loan value in such accoun t counted at the ously thereafter. su ch accou n t; and m axim um loan value at least equal to the (3) A w arrant or certificate w hich (7) T he net proceeds o f sale o f any “ retention requirem ent” o f those securi evidences only a right to subscribe to or ties, or (iii) cash m ay be w ithdraw n upon otherwise acquire any security and w hich securities (oth er th an unissued securi the deposit in the general account, the expires w ithin 90 days o f issuance ties) sold fo r such accoun t but fo r w hich special bond accoun t su bject to shall have n o loan value in a general paym ent has n ot yet been credited § 220.4.( i) , or the special convertible account, special bon d accou n t subject to thereto. security accoun t su bject to § 220.4 (j ) o f § 220.4( i ) , or special convertible security In case such accou n t is the accou n t o f a securities having a m axim um loan value accoun t su bject to § 220.4( j ) ; but, if the partner o f the creditor or the accou n t o f in such accoun t at least equal to the accoun t contains the security to the a join t venture in w hich the cred itor p a r am ount o f cash w ithdraw n, or (iv) upon holder o f w hich such w arrant or certifi ticipates, the adjusted debit balance shall the sale (oth er than the short sale) o f cate has been issued and such w arrant be com puted accordin g to the foregoin g securities having loan value in the gen or certificate is held in an appropriate rule and the supplem entary rules p re eral account, special bond accoun t sub accoun t m aintained by the creditor for scribed in § 220.6 (a ) and (b ). je c t to § 220.4 (i) or special convertible the custom er the current m arket value o f (e) Liquidation in lieu o f d ep osit} In security accoun t su bject to § 220.4(j) such security (if such security is a regu any case in w hich the deposit required by there m ay be w ithdraw n in cash an lated security) shall, fo r the purpose o f paragraph (b ) o f this section, or any am ount equal to the difference between calculating its m axim um loan value, be portion th ereof, is n ot obtain ed by th e the current m arket value o f the securities increased by the current m arket value creditor w ithin the 5-d ay period sp eci sold and the “ retention requirem ent” o f o f such w arrant or certificate. fied therein, regulated n onexem pted su ch securities, or (v) upon the sale (4) F or the current m arket value o f securities shall be sold (or, to the exten t (oth er th an the sh ort sale) o f a regis a security throughout the day o f its pu r th at there are insufficient regulated n o n tered nonequity security or an exem pted chase or sale, the creditor shall use its exem pted securities in the general a c security th at was held in the general .total cost or the net proceeds o f its sale, count, special b on d a ccou n t su bject to accou n t on M arch 11, 1968, and con tin u as the case m ay be, and at any oth er § 220.4( i) , or special convertible security ously th ereafter there m ay be w ithdraw n time shall use the closing sale price o f accoun t su bject to § 220.4(j) oth er liqu i in cash an am ount equal to the difference the security on the preceding business dating transactions shall be effected in between the curren t m arket value o f the day as show n by any regularly published such a c c o u n t), prior to the expiration o f securities sold and the “ retention re reporting or quotation service. In the such 5-day period, in such am oun t th at quirem ent” o f those securities as pre absence o f any such closing sale price, the resulting decrease in the adjusted scribed in § 220.8 (the Supplem ent to the creditor m ay use any reasonable debit balance o f such a ccou n t exceeds, by R egu lation T ) . estim ate o f the m arket value o f such se an am ount at least as great as such re (3) Rules fo r com pu tin g the m a x icurity as o f the close o f business on such quired deposit or the undeposited p o r m um loan value o f the securities in a preceding business day. tion thereof, the “ reten tion requirem ent” general accoun t, special bon d accou n t (d) A djusted debit balance. For theo f any regulated or exem pted securities su bject to § 220.4(i) or special con verti purpose o f this part, the adjusted debit s o ld : Provided, T h a t a creditor is n ot re ble security accou n t su bject to § 220.4(j) balance o f a general account, special quired to sell securities or to effect other and th e adjusted debit balance o f such bon d accou n t su bject to § 220.4(i) or spe liquidating transactions specified by this accou n t are provided in paragraphs (c ) cial convertible security accou n t su bject paragraph in an am oun t greater than and (d ) o f this section, and certain to § 220.4(j) shall be calculated by tak necessary to elim inate the excess o f the m odifications o f and exceptions to the ing the sum o f the follow in g item s: adjusted debit balance o f su ch accou n t general rule stated in this paragraph (1) T h e net debit balance, if any, o f over th e m axim um loan value o f the are provided in the subsequent p ara such a ccou n t; securities rem ainin g in su ch accoun t graphs o f this section and in § 220.6. (2) T he total cost o f any securities after such liquidation. (c) M axim um loan value and curren t (oth er than unissued securities) bought (f) E xtensions o f tim e. In exception al m a rket .value. (1) T h e m axim um loan fo r such accoun t but n ot yet debited cases, the 5-d a y period specified in p a ra value o f the securities in a general a c thereto; graph (b) o f this section m ay, on ap p li count, special bond accoun t su bject to (3) T h e current m arket value o f any § 220.4 ( i ) , or special convertible security securities (other th an unissued securi cation o f the creditor, be exten ded for accou n t su bject to § 220.4(j) is the sum ties) sold sh ort in the general accoun t one or m ore lim ited periods com m en su o f the m axim um loan values o f the in plus, fo r each security (oth er than an rate w ith the circu m stan ces ( 1) by any dividual securities in such account, in exem pted se cu rity ), such am ount as the regularly constituted com m ittee o f a n a cluding securities (oth er than unissued B oard shall prescribe from tim e to time tional securities exch an ge h aving ju ris securities) bought fo r such accou n t but in § 220.8 (the Supplem ent to R egu la diction over the business con d u ct o f its n ot yet debited thereto, but excluding tion T ) as the m argin required fo r such mem bers, o f w hich exch an ge th e cred i securities sold fo r such accoun t w hether short sales, except th at such am ount so tor is a m em ber or th rough w h ich his or n ot paym ent has been credited prescribed in such § 220.8 need n ot be transactions are effected, or (2) in in stances where the procedu re described thereto. included w hen there are held in the gen (2) E xcept as otherwise provided ineral accoun t the same securities or above is n ot readily available or a p p ro this paragraph, the m axim um loan value securities exchangeable or convertible priate, by a com m ittee o f a n ational o f a security in a general account, spe w ithin 90 calen dar days, w ithout restric securities association : Provided, T h at cial bon d accoun t su bject to § 220.4(1), tion oth er th an the paym ent o f m oney, such com m ittee is satisfied th at the creditor is acting in g ood fa ith in m ak or special convertible security accoun t in to such securities sold short; ing the application and th at the circu m su bject to § 220.4(j) shall be such m a x (4) The am ount o f m argin specified im um loan value as the B oard shall p re by paragraph (h ) o f this section fo r stances are in fa c t exception al and w ar scribe from tim e to time in § 220.8 (the every net com m itm ent in such accoun t ran t such action. Supplem ent to R egulation T ) . No c o l in unissued securities, plus all unrealized 1 T h is req u irem en t relates to th e a c tio n to lateral other than an exem pted security losses on each com m itm en t in unissued b e ta k en w h en a cu sto m e r fa ils t o m ak e th e d ep osit requ ired b y § 2 2 0 .3 (b ), a n d It is n o t or a registered nonequity security held securities and m inus all unrealized gains (n ot exceeding the required m argin ) on in ten d ed to c o u n te n a n c e o n th e p art o f cu s in such accou n t o n M arch 11, 1968, and tom ers th e p ra ctice c o m m o n ly k n o w n as each com m itm en t in unissued securi " fr e e -r id in g ” , t o p rev en t w h ic h t h e p rin cip a l continuously thereafter, or regulated ties; and n a tion a l secu rities exch an ges h a v e a d op ted equity security shall have any loan value (5) T h e am ount o f any m argin cus c erta in rules. See th e ru les o f s u c h exchan ges in a general accoun t except th at a regis tom arily required by the creditor In co n a n d § 2 2 0 .7 (e ). 3 (g ) T ransactions on given day. F or the § 220.4(j) by the am ount o f the paym ent fu ll cash paym ent fo r the security and purposes o f paragraph (b) o f this section, m inus the am ount requried to be in that the custom er does n ot contem plate th e question o f w hether or not an excess cluded in the adjusted debit balance o f selling the security prior to m aking such o f the adjusted debit balance o f a gen su ch account, at the time o f and in c o n paym ent. (ii) Sell any security for, or purchase eral account, special bon d accoun t sub n ection w ith the purchase o f the unissued je c t to § 220.4(i), or special convertible security, as the m argin required fo r such an y security from , any customer, p ro purchase. vided the security is held in the account security accoun t su bject to § 220.4(j) or the creditor is in form ed that the cus over the m axim um loan value o f the § 220.4 Special accounts. tom er or his principal owns the security securities in such accoun t is created or (a) General rule. (1) Pursuant to this and the purchase or sale is in reliance increased on a given day shall be deter m ined on the basis o f all the transactions section, a creditor m ay establish fo r any upon an agreem ent accepted by the in the accou n t on such day exclusive o f custom er one or m ore special accounts. creditor in good faith that the security (2) E ach such special accoun t shall be is to be prom ptly deposited in the any deposit o f cash, deposit o f securities, coverin g transaction or other liquidation recorded separately and shall be c o n account. (2) In case a custom 3r purchases a th at has been effected on -such day, pu r fined to the transactions and relations su an t to the requirem ent o f paragraphs specifically authorized for such account security (oth er th an an exem pted secu (b ) or (e) o f this section, in con n ection by the appropriate paragraph o f this sec rity ) in the special cash accoun t and w ith a tran saction on a previous day. In tion and to transactions and relations in ■does not make full cash paym ent fo r the an y case in w hich an excess so created, cidental to those specifically authorized. secu rity w ithin 7 days after the date on or increase so caused, by transactions on An adequate record shall be m aintained w hich the security is so purchased, the a given day does n ot exceed $100, the sh ow in g fo r each such accoun t the full creditor shall, except as provided in subcreditor need not obtain the deposit details o f all transactions in the paragraphs (3) —(7) o f this paragraph, account. prom ptly can cel or otherwise liquidate specified th erefor in subparagraph (b) (3) A special account established pu r the transaction or the unsettled portion (1) o f this section. A ny tran saction w h ich serves to m eet the requirem ents suant to this section shall n ot be used in th ereof. o f paragraph (e) o f this section or any w ay fo r the purpose o f evading or (3) I f the security w hen so purchased otherw ise serves to perm it any offsetting circum venting any o f the provisions o f is an unissued security, the period appli tran saction in an accoun t shall, to that this part. I f a custom er has w ith a credi cable to the transaction under subpara extent, be unavailable to perm it any tor both a general accoun t and one or graph (2) o f this paragraph shall be 7 oth e r transaction in such accoun t. For m ore such special accounts, the creditor days after the date on w hich the secu th e purposes o f this part (R egulation T ) , shall treat each such special accoun t as rity is m ade available by the issuer for if a security has m axim um loan value i f the custom er h ad with the creditor n o delivery to purchasers. I f the security u nder paragraph ( c ) ( 1 ) o f this section general account, special bond accoun t w hen so purchased is a “ w hen dis in a general account, a sale o f the same su bject to § 220.4 (i), or special con vert tributed” security w hich is to be dis security (even though n ot the same cer ible security accoun t su bject to § 220.4 (j ) . tributed in accordance w ith a published (4) T he only other conditions to w hich plan, the period applicable to the trans tificate) in such accoun t shall be deem ed to be a long sale and shall n ot be deemed transactions in such special accounts action under subparagraph (2) o f this shall be su bject under the provisions o f paragraph shall be 7 days after th e date to be or treated as a short sale. (h ) Unissued securities. (1) T h e this part shall be such condition s as are o n w hich the security is so distributed. am oun t to be included in the adjusted specified in the appropriate paragraph o f I f the security when so purchased is a debit balance o f a general accoun t, spe this section and in § 220.2, § 220.6, § 220.7, new security issued or to be issued fo r the purpose o f refunding outstanding secu cial b on d accoun t su bject to § 220.4(i), or § 220.8. (b) Special om nibus account. In a spe rities w hich m ature, or are to be payable or special convertible security accoun t su bject to § 220.4(j) as the m argin re cial om nibus account, a m em ber o f a n a upon presentation for redem ption, w ith quired fo r a net lon g com m itm en t In tional securities exchange m ay effect and in 35 days o f the date on w hich the new unissued securities shall be the current finance transactions for a broker or security is m ade available by the issuer m arket value o f the net am ount o f u n dealer from w hom the m em ber accepts in fo r delivery to purchasers, the period issued securities lon g m inus the m a xi good f a i t h 3 a signed statem ent to the applicable to the transaction under subm um loa n value w hich such net am ount effect th at he is su bject to the provisions paragraph (2) o f this paragraph shall o f securities w ould have if they were o f this part and from w hom the m em be 7 days after such m aturity or paym ent issued regulated securities held in such ber receives (1) w ritten notice, pu r date: Provided, T h at this sentence shall a ccou n t; and the am ount to be so in suant to a rule o f the Securities and apply only to the paym ent o f that p or clud ed as the m argin required fo r a net E xch ange Com m ission concern in g the tion o f the purchase price th at does not sh ort com m itm en t in unissued securities h ypothecation o f custom ers’ securities by exceed 103 percent o f the am ount that shall be the am ount w hich would be re brokers or dealers (Rule 8 c - l (17 CFR w ill be payable to the purchaser o f the quired as m argin fo r the net am ount § 240.8C-1) or Rule 15 c2 -l (17 CFR new security upon such m aturity of, or o f unissued securities short if such § 2 4 0 .1 5 c2 -l)) , to the effect th at all se paym ent for, securities ow ned by him securities were issued securities and curities carried in the accoun t will be at the tim e o f the purchase. (4) I f any shipm ent o f securities is w ere sold sh ort in such a ccou n t: P ro carried fo r the accoun t o f the custom ers vided, T h a t n o am ount need be included o f the broker or dealer and (2) w ritten incidental to the consum m ation o f the as m argin fo r a net short com m itm en t notice that any short sales effected in the transaction, the period applicable to the in unissued securities w hen there are accoun t will be short sales m ade in beh alf transaction under subparagraph (2) o f h eld in such accou n t securities in respect o f the custom ers o f the broker or dealer this paragraph shall be deemed to be extended by the num ber o f days required o f w hich th e unissued securities are to oth er th an his partners. (c ) Special cash account. (1) In a fo r all such shipments, but n ot by m ore be issued, n or fo r any net position in u n issued securities th at are exem pted special cash account, a creditor m ay than 7 days. effect fo r or w ith any custom er bon a fide securities. (5) I f the creditor, acting in good (2) W h enever a creditor, pursuant tocash transactions in securities in w hich fa ith in accorda n ce w ith subparagraph (1) o f this paragraph, purchases a se a purchase o f an unissued security fo r the creditor m ay: (i) Purchase any security for, or sellcurity fo r a custom er, or sells a security a custom er, receives an issued security w h ich is n ot a regulated or exem pted any security to, any custom er, provided to a custom er, w ith the understanding security, the creditor shall treat any p a y funds sufficient for the purpose are al that he is to deliver the security prom ptly m ent by h im fo r such issued security as ready h eld in the accoun t or the purchase to the custom er, and the full cash pa y or sale is in reliance upon an agreem ent m ent to be m ade prom ptly by the cu s a tran saction (oth er than a w ithdraw al) w hich increases the adjusted debit bal accepted by the creditor in good faith tom er is to be m ade against such deliv an ce o f a general accoun t, special bond th at the custom er w ill prom ptly m ake ery, the creditor m ay at his option treat th e transaction as on e to w hich the accou n t su bject to § 220.4 (i), or special 1 As d efined in § 2 2 0 .7 (c). period applicable under subparagraph con vertible security accou n t su bject to 4 (2) o f this paragraph is n ot the 7 days therein specified but 35 days after the date o f such purchase or sale. (6) I f an appropriate com m ittee o f a national securities exchange or a n a tional securities association is satisfied th at the creditor is acting in good faith in m aking the application, that the ap plication relates to a bona fide cash transaction, and th at exceptional c ir cum stances w arrant such action, such com m ittee, on application o f the creditor, m ay (i) extend any period specified in subparagraphs (2 ), (3 ), (4 ), or (5) o f this paragraph fo r one or m ore lim ited periods com m ensurate w ith the circu m stances, or ( i i ) , in case a security pu r chased by the custom er in the special cash accoun t is a regulated or exem pted security, authorize transfer o f the trans action to a general account, special bond accou n t su bject to § 220.4 ( i ) , special con vertible security accoun t su bject to § 22 0 .4 (j), or special om nibus accoun t and com pletion o f the transaction pu r suant to the provisions o f this part relat in g to such an account. (7) T h e 7-d ay periods specified in this paragraph refer to 7 full business days. T h e 35-day period and the 90-day period specified in this paragraph refer to c a l endar days, bu t if the last day o f any such period is a Saturday, Sunday, or holiday, such period shall be considered to end on the next full business day. For the purposes o f this paragraph, a credi tor may, at his option, disregard any sum due by the custom er n ot exceeding $100. (8) Unless funds sufficient fo r the pur pose are already in the account, n o secu rity other than an exem pted security shall be purchased far, or sold to, any custom er in a special cash accoun t with the creditor if any security other than an exem pted security has been purchased by such custom er in such an account during the preceding 90 days, and then, fo r any reason whatever, w ithout having been previously paid fo r in fu ll by the custom er, the security has been sold in the accoun t or delivered out to any broker or dealer: Provided, T h a t an a p propriate com m ittee o f a national securi ties exchange or a national securities as sociation, on application o f the creditor, m ay authorize the creditor to disregard fo r the purposes o f this subparagraph any given instance o f the type therein described if the com m ittee is satisfied that both creditor and custom er are a ct in g in good faith and that circum stances w arrant such authorization. F or the pu r poses o f this subparagraph, the can cella tion o f a transaction, otherwise than to correct an error, shall be deem ed to co n stitute a sale. T h e creditor m ay disregard fo r the purposes o f this subparagraph a sale w ithout prior paym en t provided fu ll cash paym ent is received w ithin the pe riod described by subparagraph (2) o f this paragraph and the custom er has n ot w ithdraw n the proceeds o f sale on or before the day on w hich such paym ent (and also final paym ent o f any check received in th at con n ection ) is received. T he creditor m ay so disregard a delivery o f a security to another broker or dealer provided such delivery was fo r deposit into a special cash accoun t w hich the poration, and, in addition to the fa ct that latter broker or dealer m aintains fo r the an appropriate com m ittee o f th e ex same custom er and in w hich account change is satisfied th at the credit th at is there are already sufficient fu nds to pay n ot in contraven tion o f any rule o f the fo r the security so purch ased; and for exchange, the credit has the approval the purpose o f determ ining in that c o n o f such com m ittee, or n ection the status o f a custom er’s a c (b) Th e lender as well as the borrow er coun t at another broker or dealer, a is a m em ber o f such exchange, the credit creditor m ay rely u pon a w ritten state has the approval o f an appropriate c o m m ent w hich he accepts in good faith from m ittee o f the exchange, and the com m it such other broker or dealer. tee, in addition to being satisfied that (d) Special arbitrage account. In a the credit is n ot in contraven tion o f any special arbitrage account, a m em ber o f a rule o f the exchange, is satisfied th at the national securities exchange m ay effect credit is outside the ordin ary course o f and finance for any custom er bon a fide the lender’s business, and that, if the b or arbitrage transactions in securities. For row er’s firm or corporation or an affi the purposes o f this paragraph, the term liated corporation o f such firm or c o rp “ arbitrage” m eans ( l ) a purchase or sale oration does any dealing in securities fo r its own account, the credit is n ot for the o f a security in one m arket together with an offsetting sale or purchase o f the purpose o f increasing the am ount o f such same security in a different m arket at as dealing. nearly the same time as practicable, for (iii) F or the purpose o f subdivisions the purpose o f taking advantage o f a (i) and (ii) o f this subparagraph, the difference in prices in the tw o markets, term “ affiliated corp ora tion ” m eans a or (2) a purchase o f a security w hich is, corporation all the com m on stock o f w ithout restriction other than the p a y w hich is ow ned directly or indirectly by m ent o f m oney, exchangeable or c o n the m em ber firm or general partners and vertible w ithin 90 calendar days follow ing em ployees o f the firm, or by the m em ber the date o f its purchase in to a second corporation or holders o f votin g stock and security together w ith an offsetting sale em ployees o f the corporation and an ap at or about the same time o f such second propriate com m ittee o f the exch an ge has security, for the purpose o f taking a d approved the m em ber firm ’s or m em ber vantage o f a disparity in the prices o f corp oration ’s affiliation w ith such affili ated corporation. the tw o securities. (3) Purchase any security from any (e) Special com m od ity account. In a special com m odity account, a creditor custom er w ho is a broker or dealer, or sell m ay effect and carry fo r any custom er any security to such custom er: Provided, T h at the creditor acting in good faith transactions in com m odities. (f) Special m iscellaneous account. In purchases or sells th e security fo r de a special m iscellaneous account, a livery, against full paym ent o f the pu r chase price, as prom ptly as practicable creditor m ay: in accordance w ith the ordin ary usage (1) W ith the approval o f any regularly o f the trade; constituted com m ittee o f a n ational se (4) Effect and finance, fo r any m em curities exchange having ju risdiction ber o f a national securities exchange w ho over the business con d u ct o f its members, is registered and acts as o d d -lo t dealer extend and m aintain credit to m eet the in securities on the exchange, such m em em ergency needs o f any c r e d ito r s ber’s transactions as an o d d -lo t dealer (2) (i) Extend and m aintain credit, in such securities, or effect an d finance, (a) to or for any partner o f a firm w hich fo r any jo in t venture in w hich the cred i is a m em ber o f a national securities ex tor participates, any tran saction s in any change to enable such partner to make securities o f an issue w ith respect to a contribution o f capital to such firm, or w hich all participants, or all participants to purchase stock in an affiliated corpora other than the creditor, are registered tion o f such firm ; or (b ) to or fo r any and act on a national securities exchange person w ho is or will becom e the holder as o d d -lo t dealers; o f stock o f a corporation w hich is a (5) E ffect transactions fo r and finance m em ber o f a national securities exchange any jo in t venture or group in w hich the to enable such person to purchase stock creditor participates and in w h ich all in such corporation, or to purchase stock participants are dealers (w hether such in an affiliated corporation o f such c o r participants be acting join tly or sever poration; provided the lender as well as ally) , or any m em ber th ereof or p a rtici the borrow er is a partner in such m em ber pant therein, fo r the purpose o f fa cilita t firm or a stockholder in such m em ber ing the underw riting or distributing o f all corporation, or the lender is a firm or or part o f an issue o f securities (i) n ot a stockholder in such m em ber corp ora through m edium o f a n ational securities tion, o r the lender is a firm or corp ora exchange, or (ii) the distribution o f tion w hich is a m em ber o f a national w hich has been approved by the ap pro securities exchange and the borrow er is priate com m ittee o f a national securities a partner in such firm or a stockholder ex ch a n g e; in such corporation : (6) E ffect fo r any custom er the c o l (ii) Extend and m aintain subordi lection or exchange (oth er th an by sale nated credit to another creditor for or purchase) o f securities deposited by capital purposes: Provided, That, the custom er specifically fo r such pu r (a ) Either the lender or the borrow er poses, and (su bject to any oth er ap pli is a firm or corporation w hich is a m em cable provisions o f law ) receive from or ber o f a national securities exchange, the fo r any custom er, and pay out or deliver oth er party to the credit is an affiliated to or fo r any custom er, any m oney or corporation o f such m em ber firm or c o r securities; 5 (7) Effect and carry for any customer transactions in foreign exchange; and (8) Extend and maintain credit to or for any customer without collateral or on any collateral whatever for any purpose other than purchasing or carrying or trading in securities. (g) Specialist’s account. In a special account designated as a specialist’s ac count, a creditor may effect and finance, for any member of a national securities exchange who is registered and acts as a specialist in securities on the exchange, such member’s transactions as a special ist in such securities, or effect and finance, for any joint venture in which the creditor participates, any transac tions 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 securi ties exchange as specialists. Such special ist’s account shall be subject to the same conditions to which It would be subject if it were a general account except that if the specialist’s exchange, in addition to the other requirements applicable to spe cialists, is designated by the Board of Governors of the Federal Reserve System as requiring reports suitable for supply ing current information regarding spe cialists’ use of credit pursuant to this paragraph, the requirements of § 220.6 (b) regarding joint ventures shall not apply to such accounts and the maxi mum loan value of a registered security in such account shall be as determined by the creditor in good faith. (h) Special subscriptions account. In a special subscriptions account a credi tor may effect and finance the acquisition of a regulated security for a customer through the exercise of a right to acquire such security which is evidenced by a warrant or certificate issued to stock holders and expiring within 90 days of is suance, and such special subscriptions account shall be subject to the same con ditions to which it would be subject if it were a general account, except that: (1) Each such acquisition shall be treated separately in the account, and prior to initiating the transaction the creditor shall obtain a deposit of cash in the account such that the cash de posited plus the maximum loan value of the securities so acquired equals or exceeds the subscription price, giving effect to a maximum loan value for the securities so acquired of 75 percent of their current market value as determined by any reasonable method; (2) After October 20, 1967, at the time when credit is extended pursuant to this paragraph, the creditor shall compute the amount by which the credit exceeds the maximum loan value of the collat eral as prescribed by § 220.8 (the Sup plement to Regulation T) and the cus tomer shall reduce the credit by an amount equal to at least one-fourth of such sum by the end of each of the four succeeding 3-calendar-month periods or until the credit does not exceed the cur rent maximum loan value of the col lateral, whichever shall occur first, and, if the creditor fails to obtain the re quired quarterly reduction or a por tion thereof with respect to a particular (4) In the event any stock is to be sub acquisition within 5 full business days after such reduction is due, the creditor stituted for a security held in this ac shall promptly liquidate a portion of the count, or if a security held in this ac collateral so acquired and apply the pro count is to be used to offset a short sale ceeds of the sale to reduce the credit, in the general account, such security in an amount equal to at least twice the shall thereupon be transferred to the required payment or portion thereof for customer’s general account against a de the first two such liquidations, at least posit of cash or regulated equity securi equal to the required payment or por ties eligible for an extension of credit in tion thereof for the third such liquida this account (counted at their maximum tion, and at least sufficient so that the loan value) equal to at least the maxi remaining credit does not exceed the mum loan value of the security for which current maximum loan value of the re such substitution is made, without re maining collateral after the fourth such gard to the retention requirement of liquidation: Provided, That, no such liq § 220.3(b) (2). uidation need be in an amount greater § 220.5 Borrowing by members, bro than is necessary so that the remaining kers, and dealers. credit does not exceed the maximum loan (a) General rule. It is unlawful for value of the remaining collateral deter mined as of the date the credit was ex any creditor, directly or indirectly, to tended : And provided further, That as to borrow in the ordinary course of business loans made between October 20, 1967, as a broker or dealer on any registered and March 11, 1968, such four succeed security (other than an exempted secu ing periods shall begin on March 11, rity) except: (1) From or through a member bank 1968; and (3) The creditor shall not permit anyof the Federal Reserve System; or (2) From any nonmember bank withdrawal of cash or securities from the account so long as the remaining credit which shall have filed with the Board an exceeds the maximum loan value of the agreement which is still in force and remaining collateral in the account, ex which is in the form prescribed by this cept that when the remaining credit ex Part; or (3) To the extent to which, under the tended in connection with a given acquisition of securities in the account provisions of this Part, loans are per has become equal to or less than the max mitted between members of a national imum loan value of such securities as securities exchange and/or brokers and/ prescribed in § 22’0.8 (the Supplement to or dealers, or loans are permitted to meet Regulation T) (or in connection with an emergency needs. (b) Agreements of nonmember banks. acquisition after October 20, 1967, the requirements of subparagraph (2) of this An. agreement filed pursuant to section section have been fulfilled), such secu 8(a) of the Act (15 U.S.C. 78h(a)) by rities shall be transferred to the general a bank not a member of the Federal Re account (or, if eligible, to a special con serve System shall be substantially in the vertible security account pursuant to form contained in Form F.R. T-2 if the § 220.4(j)) together with any remaining bank has its principal place of business portion of such credit. In order to facili in a territory or insular possession of the tate the exercise of a right in accordance United States, or if it has an office or with the provisions of this paragraph, a agency in the United States and its prin creditor may permit the right to be trans cipal place of business outside the United ferred from a general account to the States. The agreement filed by any other special subscriptions account without re nonmember bank shall be in substan gard to any other requirement of this tially the form contained in Form F.R. T—1. Any nonmember bank which has part. (1) Special bond account. In a special executed any such agreement may ter bond account a creditor may effect and minate the agreement if it obtains the finance transactions in exempted securi written consent of the Board. Blank ties and registered nonequity securities forms of such agreements, information regarding their filing or termination, and for any customer. (j) Special convertible debt security information regarding the names of non account. (1) In a special convertible debt member banks for which such agree are in force, may be obtained security account a creditor may extend ments from any Federal Reserve Bank. credit on any regulated security consist (c) Borrowing from other creditors. ing of a debt security convertible into regulated stock or a debt security carry A creditor may borrow from another ing a warrant or right to subscribe to creditor in the ordinary course of busi ness as a broker or dealer on any regis or purchase such stock. security to the extent and subject (2) A special convertible debt security tered account shall be subject to the same to the terms upon which the latter may conditions to which it would be sub extend credit to him in accordance with ject if it were a general account except the provisions of this part, and subject that the maximum loan value of the se to any other applicable provisions of law. curities in the account shall be as pre § 220.6 Certain technical details. scribed from time to time in § 220.8 (the (a) Accounts of partners. In case a Supplement to Regulation T ) . general account, special bond account (3) Any security which ceases to be an subject to § 220.4 (i), or special converti equity security while held in this ac ble security account subject to § 220.4(j) count shall continue to be treated as an is the account of a partner of the cred equity security as long as it is continu itor, the creditor, in calculating the ad ously held in this account. justed debit balance of such account and 6 the m axim um loan value o f the securi ties therein, shall disregard the partner’s financial relations w ith the firm as re flected in his capital and ordinary draw ing accounts. (b) Contribution to join t venture. In case a general account, special bond a c coun t subject to § 220.4(i), or special convertible security accoun t su bject to § 220.4(j) is the accoun t o f a join t ven ture in w hich the creditor participates, th e adjusted debit balance o f such a c cou n t shall include, in addition to the items specified in § 22 .3(d), any am ount by w hich the cred itor’s contribution to the join t venture exceeds the con tribu tion w hich he would have made if he had contributed m erely in proportion to his righ t to share in the profits o f the jo in t venture. (c ) G uaranteed accounts. No guaran tee o f a custom er’s accoun t shall be given any effect fo r purposes o f this part. (d ) T ransfer o f accounts. (1) In the event o f the transfer o f a general a c count, special bond accoun t su bject to § 220.4 (i), or special convertible security accou n t su bject to § 220.4(j) from one creditor to another, such accoun t m ay be treated for the purposes o f this part as if it h ad been m aintained by the trans feree from the date o f its origin: P ro vided, T h at, the transferee accepts in good faith a signed statem ent o f the transferor th at no cash or securities need be deposited in such accoun t in con n ec tion w ith any transaction that has been effected in such accoun t or, in case he finds th at it is n ot practicable to obtain such a statem ent from the transferor, accepts in good faith such a signed state m ent from the custom er. (2) In the event o f the transfer o f general account, special bon d account su bject to § 220.4(i), or special convert ible security accoun t su bject to § 220.4 ( j ) , from one custom er to another, or to others, as a bona fide incident to a trans action th at is not undertaken for the purpose o f avoiding the requirem ents o f this part, each such transferee account m ay be treated by the creditor for the purposes o f this part as if it had been m aintained for the transferee from the date o f its origin: Provided, That, the creditor accepts in good faith and keeps w ith such transferee accoun t a signed statem ent o f the transferor describing the circum stances giving rise to the transfer. (e) R eorganizations. A creditor may, w ithout regard to the other provisions o f this Part, effect fo r a custom er the ex change o f any regulated or exem pted se curity in a general account, special bond accoun t subject to § 220.4(i), or special convertible security accoun t su bject to § 2 2 0.4(j), for the purpose o f participat ing in a reorganization or recapitaliza tion in w hich the security is involved: Provided, T h at if an unregulated n on exem pted security is acquired in ex change, the creditor shall not, fo r a pe riod o f 60 days follow ing such acquisition, perm it the w ithdraw al o f such security or the proceeds o f its sale from such a c count except to the extent that such se curity or proceeds could be w ithdraw n if the security were a regulated security. (f) Time o f receip t o f funds or secu ri arrearage on the security w ith respect to ties. F or the purposes o f this part, a w hich it was distributed, and the cu r creditor may, at his option (1) treat the rent m arket value o f any securities w ith receipt in good faith o f any check or draft drawn does n ot exceed 10 percent o f the draw n on a bank w hich in the ordinary current m arket value o f the security w ith course o f business is payable on presenta respect to w hich they w ere distributed. tion, or any order on a savings bank w ith Failure by a creditor to obtain in a gen passbook attached w hich is so payable, eral account, special bon d accou n t sub as receipt o f paym ent o f the am ount o f je ct to § 220.4 ( i ) , or special convertible such check, draft or order; (2) treat the security accoun t su bject to § 2 2 0 .4 (j), shipm ent o f securities in good faith w ith a n y 'c a s h or securities th at are distrib sight draft attached as receipt o f p a y uted w ith respect to any security in such m ent o f the am ount o f such sight d raft; accoun t shall, except to the extent that and (3) in the case o f the receipt in good w ithdraw al w ould be perm itted under faith o f w ritten or telegraphic n otice in the preceding sentence, be deem ed to be conn ection w ith a special om nibus a c a transaction in such accou n t w hich o c count o f a custom er not located in the curs on the day on w h ich the distribu same city th at a specified security or a tion is payable and w hich requires the check or draft has been dispatched to the creditor to obtain in a ccorda n ce w ith creditor, treat the receipt o f such notice § 220.3(b) a deposit o f cash or securities as receipt o f such security, check, or having a m axim um loan value at least as d ra ft: Provided, h ow ever, T h at if the great as th at o f the distribution. creditor receives notice th at such check, (h ) B orrow ing and lending securities. draft, order, or sight d raft described in W ithou t regard to the oth er provisions subparagraphs (1 ), (2 ), or (3) o f this o f this part, a creditor (1) m ay m ake a paragraph is n ot paid on the day o f pres bona fide deposit o f cash in order to b o r entation, or if such security, check or row securities (w hether regulated or un draft described in subparagraph (3) o f regulated) fo r the purpose o f m aking this paragraph is n ot received by the delivery o f such securities in the case o f creditor w ithin a reasonable time, the short sales, failure to receive securities creditor shall prom ptly take such action he is required to deliver, or other sim ilar as he would have been required to take cases, and (2) m ay lend securities fo r by the appropriate provisions o f this part such purpose against such a deposit. if the provisions o f this paragraph had (i) Credit fo r clearan ce o f securities. n ot been utilized. T he extension or m ain ten an ce o f any credit w hich is m aintained fo r only a (g ) In terest, service charges, etc. (1) Interest on credit m aintained in a gen fraction o f a day (th at is, fo r only pari; eral account, special bon d accoun t sub o f the tim e between the beginning o f je ct to § 220.4 (i), or special convertible business and m idnigh t on the same day) security accoun t su bject to § 2 2 0.4(j), shall be disregarded fo r the purposes o f com m unication charges w ith respect to this part, if it is incidental to the clear transactions in such account, shipping ance o f transactions in securities directly acharges, prem ium s on securities borrow ed between m em bers o f a n ational secu ri in con n ection with short sales or to e f ties exchange or through an agency o r fect delivery, dividends or other distribu ganized or em ployed by such m em bers tions due on borrowed securities, and any fo r the purpose o f effecting such service charges (other than com m issions) clearance. (j) Foreign curren cy. I f foreign cu r w hich the creditor m ay im pose, m ay be debited to such accoun t in accordance rency is capable o f being converted w ith the usual practice and w ithout re w ithout restriction in to U.S. currency, a gard to the other provisions o f this part, creditor acting in good fa ith m ay treat but such items so debited shall be taken any such foreign curren cy in an accoun t into consideration in calculating the net as a credit to the accoun t in an am ount credit or net debit balance o f such determ ined in accorda n ce w ith custom ary practice. account. (2) A creditor m ay perm it interest, (k) In n ocen t m istakes. I f any failure dividends or other distributions received to com ply w ith this part results from a by the creditor w ith respect to securities m echanical mistake m ade in good fa ith in a general account, special bond a c in executing a transaction, recording, cou n t su bject to § 2 2 0 .4 (i), or special determ ining, or calculating any loan, convertible security accoun t subject to balance, m arket price or loan value, or § 22 0 .4 (j), to be w ithdraw n from such other similar m ech an ical mistake, the accoun t only on condition that the ad creditor shall n ot be deem ed guilty o f a justed debit balance o f such account violation o f this part if prom ptly after does not exceed the m axim um loan value the discovery o f such mistake he takes o f the securities in such accoun t after whatever action m ay be practicable in such withdrawal, or on condition that the circum stances to rem edy such (i) such w ithdraw al is m ade w ithin 35 mistake. days after the day on w hich, in accord § 220.7 Miscellaneous provisions. ance w ith the creditor’s usual practice, (a) Arranging fo r loans by others. A such interest, dividends or other distri creditor m ay arrange for the extension butions are entered in such account, (ii) or m aintenance o f credit to or fo r any such entry in the accoun t has n ot served custom er o f such creditor by any person in the m eantim e to perm it in the a c upon the same term s and condition s as coun t any transaction w hich could n ot those upon w hich the creditor, under the otherwise have been effected in a c provisions o f this part, m ay him self ex cordance w ith this part, and (iii) any tend or m aintain such credit to such cus cash w ithdraw n does n ot represent any tom er, but only upon such term s and 7 (1) o f a registered n on -equ ity security h eld in the accou n t on M arch 11, 1968, and continuously thereafter and o f a regulated equity security (except as p ro vided in § 220.3(c) and § 220.8 (b) and ( c ) ) , 20 percen t o f the current m arket value o f such securities. (2) o f an exem pted security held in the accou n t on M arch 11, 1968, and c o n tinuously th ereafter the m axim um loan value o f the security, as determ ined by the creditor in good faith. (b) M axim um loan value fo r a special bond accou n t. T h e m axim um loan value o f an exem pted security and o f a reg istered nonequity security pursuant to § 220.4(i) shall be the m axim um loan value o f the security as determ ined by the creditor in good faith. (c) M axim um loan value fo r special con vertible d ebt security accou n t. T h e m axim um loan value o f a regulated equity security eligible for a special co n vertible security accoun t pursuant to § 220.4(j) shall be 40 percen t o f the curren t m arket value o f the security. (d) M argin required fo r sh ort sales. T h e am ount to be included in the a d ju sted debit balance o f a general account, pursuant to § 220.3(d) (3 ), as m argin re quired fo r short sales o f securities (oth er than exem pted securities) shall be 80 percen t o f the curren t m arket value o f each security. (e) R eten tion requirem ent. In the case o f an accoun t w hich would have an excess o f the adjusted debit balance o f the accoun t over the m axim um loan value o f the securities in the accoun t follow in g a w ithdraw al o f cash o r securi ties from the account, pursuant to § 220.3(b) ( 2 ) : (1) T he “ retention requirem ent” o f an exem pted security held in the general accou n t on M arch 11, 1968, and con tin u ously thereafter shall be equal to its m axim um loan value as determ ined by the creditor in good faith, and the “ re tention requirem ent” o f a registered n on equity security held in such accou n t on M arch 11, 1968, and continu ou sly there after and o f a regulated security shall be 70 percen t o f the current m arket value o f the security. (2) In the case o f a special bond a c coun t su bject to § 220.4(1), the retention requirem ent o f an exem pted security and o f a registered nonequity security shall be equal to the m axim um loan value o f the security. (3) In the case o f a special converti ble security accoun t su bject to § 220.4(j) w hich would have an excess o f the a d justed debit balance o f the accoun t over the m axim um loan value o f the securi ties in the accoun t follow in g a w ithdraw al o f cash or securities from the account, the retention requirem ent o f a security having loan value in the accoun t shall be 70 percent o f the current market value o f the security. (4) For the purpose o f effecting a transfer from a general accoun t to a § 220.8 Supplement. special convertible security accoun t sub (a ) M axim um loan value fo r generalje ct to § 2 2 0 .4 (j), the retention require accou n ts. T h e m axim um loan value o f m ent o f a security described in § 2 2 0.4(j), securities in a general accou n t su bject to shall be 70 percent o f its current m arket value. § 220.3 shall be: con dition s, except th at this lim itation shall n ot apply w ith respect to the a r ran gin g by a creditor fo r a bank sub je c t to P art 221 o f this ch a pter (R eg u la tion U) to extend or m aintain credit o n regulated securities or exem pted securities. (b) Maintenance of credit. E xcept as otherw ise specifically forbidden by this part, any credit initially extended w ith ou t violation o f this part m ay be m a in tained regardless o f (1) reductions in th e custom er’s equity resulting from changes in m arket prices, (2) the fa ct th a t any security in an accou n t ceases to be regulated or exem pted, and (3) an y change in the m axim um loan values or m argin requirem ents prescribed by th e B oard under this part. In m ain tain in g any such credit, the creditor m ay accep t or retain fo r his own protection ad ditional collateral o f any description, in clu din g unregulated securities. (c ) Declaration as to purpose of loan. E very extension o f credit on a regulated security (oth er than an exem pted secu rity ) shall be deem ed to be for the pu r pose o f purchasing or carrying or trading in securities, unless the creditor has a c cepted in good faith a w ritten statem ent to the contrary in con form ity w ith the requirem ents o f Federal Reserve Form T -4 executed by the custom er and ex ecuted and accepted in good faith by the cred itor prior to such extension. T h e cred itor shall retain such statem ent in h is records fo r at least 3 years after such credit is extinguished. T o accept th e custom er’s statem ent in good faith, th e creditor m ust (1) be alert to the circu m stan ce surrounding the extension o f credit and (2) if he has any in form a tion w hich w ould cause a prudent m an n o t to accept the statem ent w ithout in quiry, have investigated and be satisfied th at the cu stom er’s statem ent is tru th fu l. A creditor m ay rely upon such a w ritten statem ent if accepted in a cco rd a n ce w ith this paragraph. (d ) Reports. Every creditor shall make su ch reports as the B oard m ay require to enable the B oard to perform the fu n c tions con ferred upon it by the Act. (e) Additional requirements by ex changes and creditors. N othing in this pa rt shall (1) prevent any exchange from adoptin g and en forcin g any rule or reg u lation fu rther restricting the tim e or m ann er in w hich its m em bers m ust o b tain initial or additional m argin in cus tom ers’ accoun ts because o f transactions effected in such accounts, or requiring such m em bers to secure or m aintain h igh er m argins, or fu rther restricting th e am ount o f credit w hich m ay be ex tended or m aintained by them, or (2) m od ify or restrict the right o f any cred i tor to require additional security for the m ain ten an ce o f any credit, to refuse to extend credit, or to sell any securities or property held as collateral fo r any loan or credit extended by him. 8 (f) Security having no loan value in general account. No securities other than an exem pted security or registered n o n equity security held in the accoun t on M arch 11, 1968, and continuously th ere after, and a regulated security shall have any loan value in a general accou n t ex cept th at a regulated security eligible fo r the special convertible security a c coun t pursuant to § 220.4(j) shall have loan value only if held in the accoun t on M arch 11, 1968, and continuously there after. [F.R . D oc. 69-1984; FUed, Feb. 8 :4 8 aon.] 14, 1969;
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