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Federal R
eserve
Ba n k
N
, N.Y.
Y
o r k
AREA
CODE
e w
212
of
N ew Yo r k
10045
732-5700
June 18, 1969
Regulations G, T, and U ; As Amended Effective July 8
To All Persons Extending Securities Credit
in the Second Federal Reserve District:
The Board of Governors of the Federal Reserve System has issued
amended Regulations G, T, and U, effective July 8, 1969 . They contain the
amendments referred to in the Board's statements of June 3 and June 9,
copies of which were printed and sent to you in our Circulars No. 6344 and
No. 6347 .
Regulation G is enclosed for persons other than banks, brokers,
and dealers; Regulation T, for brokers and dealers; and all three amended
regulations, for banks.
These copies are being furnished to you in the
form in which they were filed for publication in the Federal Register so
that you may have prompt notice of their content.
The Board is in the
process of printing the amended regulationsand copies in printed form
will be sent to you as soon as they become available.
ALFRED HAYES
President
5
E R R A T A
Subsequent to the reproduction of the enclosed regulations,
the Board of Governors of the Federal Reserve System informed us of
the following technical corrections:
Regulation G
1. On page 5> reference in last line of paragraph (f)
should read "paragraph (e)" instead of "paragraph (c)."
2. On page 14, the dates in the seventh line of subparagraph (l)
should read "July Q, 1969 and July 8, 1970."
Regulation T
In the fifth line on page 8, the term "registered equity security"
should read "margin equity security."
Regulation U
In the first line of paragraph 11 on page 24, the reference
"Section 221.3(u)"should read "Section 221.3(v)."
Circulars Division
Federal Reserve Bank
of New York
June 18, 1969
TITLE 12 - BANKS AND BANKING
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. G]
PART 207 - SECURITIES CREDIT BY PERSONS OTHER
THAN BANKS, BROKERS, OR DEALERS.
1. Effective July 8 , 1969, §§ 207^1 through 207.5 are
amended to read as follows:
Sec.
207.1
207.2
207.3
207.4
207.5
General rule.
Definitions.
Reports and records.
Miscellaneous provisions.
Supplement.
Authority:
The provisions of this Part 207 issued under section 7
of the Securities Exchange Act of 1934 (15 U.S.C. 78g) as amended by
P.L. 90-437 (82 Stat. 452)
§ 207.1
General rule.
(a)
Registration.
Every person who, in the ordinary course
of his business^, during any calendar quarter ended after October 20,
1967, extends or arranges for the extension of a total of $50,000 or
more or has outstanding at any time during the calendar quarter, a
2/
total of $100,000 or more, in credit, secured directly or indirectly,—
in whole or in part, by collateral that includes any margin secu
rities,— ^
unless such person is subject to Part 220 (Regulation T) or
Part 221 (Regulation U) of this Chapter, is subject to the registration
requirements of this paragraph and shall, within 30 days following the
end of the calendar quarter during which the person becomes subject to
such registration requirements, register with the Board of Governors of the
T7
2/
3/
See § 207.2(b).
See <5 207.2(i)[
See § 207.2(d).
- 2 -
§ 207.1
Federal Reserve System by filing a statement in conformity with the
requirements of Federal Reserve Form G-l with the Federal Reserve Bank
of the district in which the principal office of such person is located
Provided, That in the case of credit so secured by collateral that in
cludes any OTC margin stock^/ and/or debt securities convertible into
OTC margin stock and no other margin security, such date shall be
July
8 , 1 9 6 9, instead of October 20, 1967.
(b)
Termination of registration.
Any
person so registered
who has not, during the preceding 6 calendar months, extended or arranged
for the extension or maintenance of or had outstanding any credit secured
directly or indirectly, in whole or in part, by collateral that includes
any margin securities may apply for termination of such registration by
filing Federal Reserve Form G-2 with the Federal Reserve Bank of the
district in which the principal office of such person is located.
A
registration shall be deemed terminated when such application is approved
by the Board of Governors of the Federal Reserve System.
(c)
ments.
Any
Definition of lender and applicability of margin requireperson subject to the registration requirements of paragraph (a)
of this section who, in the ordinary course of his business, extends or
maintains or arranges for the extension or maintenance of any credit for
the purpose of purchasing or carrying any margin security (hereinafter
called "purpose credit"), if such credit is secured directly or indirectly
in whole or in part, by collateral that includes any such security, is a
—f
See § 207.2(f). "OTC stock" is stock which is traded "over-thecounter".
- 3 -
§ 207.1
"lender11 subject to this part and shall not after February 1, 1968, except
as provided in § 207.4(a), extend or arrange for the extension of any pur
pose credit in an amount exceeding the maximum loan value of the collateral,
as prescribed from time to time for margin securities in § 207.5 (the Sup
plement to Regulation G ) , or as determined by the lender in good faith
for any collateral other than margin securities:
Provided , That credit
extended before July 8 , 1969, for the purpose of purchasing or carrying
OTC margin stock and/or debt securities convertible into such stock shall
not be deemed to be purpose credit, And provided further, That any col
lateral consisting of convertible securities described in paragraph (d)
of this section shall have loan value only as provided in that paragraph.
(d)
Credit on convertible debt securities.
(1)
A lender may
extend credit for the purpose specified in paragraph (c) of this section
on collateral consisting of any debt security (i) convertible with or
without consideration, presently or in the future, into a margin secu
rity or (ii) carrying any warrant or right to subscribe to or purchase
such a margin security (such a convertible debt security is sometimes
referred to herein as a "convertible security").
(2)
Credit extended under this paragraph shall be subject to
the same conditions as any other credit subject to this section except:
(i) the entire amount of such credit shall be considered a single cre
dit treated separately from the single credit specified in paragraph (g)
of this section and all the collateral securing such credit shall be
- 4 -
§ 207.1
considered in determining whether or not the credit complies with this
part, and (ii) the maximum loan value of the collateral shall be as
prescribed from time to time in § 207.5(b) (the Supplement to Regula
tion G ) .
(3)
Any convertible security originally eligible as collateral
for credit extended under this paragraph shall be treated as such as
long as continuously held as collateral for such credit even though it
ceases to be convertible or to carry warrants or rights.
(4)
vertible
In the event that any margin security other than a con
security is substituted for a convertible security held as
collateral for credit extended under this section, such margin security
and any credit extended on it in compliance with this part shall there
upon be treated as subject to paragraph (c) of this section and not to
this paragraph and the credit extended under this paragraph shall be
reduced by an amount equal to the maximum loan value of the security
withdrawn.
(e)
Statements as to purpose of credit.
(1)
la connection
with any extension of credit secured directly or indirectly, in whole
or in-part, by collateral that includes any margin security, every per
son who is subject to the registration requirement of paragraph (a)
of this section shall, prior to such extension, obtain a statement in
conformity with the requirements of Federal Reserve Form G-3 executed
by the customer and executed and accepted in good faith by such person.
Such person shall retain such statement in his records for at least
3 years
after such credit is extinguished.
In determining whether
credit is "purpose credit", such person may rely on the statement
- 5 -
executed by the customer if accepted in good faith.
§ 207*1
To accept the customer's
statement in good faith, such person must (i) be alert to the circumstances
surrounding the credit and (ii) if he has any further information which
would cause a prudent man not to accept the statement without inquiry,
have investigated and be satisfied that the customer’s statement is truth
ful.
(2)
Circumstances which could indicate that such person has
not exercised reasonable diligence in so investigating and so satisfying
himself would include, but are not limited to, facts such as that (i) the
proceeds of the credit were paid to a broker or to a bank in connection
with contemporaneous delivery of margin securities, whether or not pay
ment was made against delivery, (ii) there were frequent substitutions
of margin securities serving as collateral for the credit, or (iii) the
amount of the credit was disproportionate, or the terms inappropriate,
to the stated purpose.
(f)
(1)
Credit extended to person subject to Regulation T .
No lender shall extend or maintain any credit for the purpose of
purchasing or carrying any margin security to any customer who is subject
to Part 220 of this Chapter (Regulation T) without collateral or on
collateral consisting of margin securities (other than exempted secu
rities!/).
Where the credit is to be used in the ordinary course of busi
ness of such customer, such credit is presumed to be for the purpose of
purchasing or carrying margin securities unless the lender has in his
records a statement to the contrary obtained and executed in conformity
with the requirements of paragraph (c) of this section .
5/
As defined in 15 U. S. C. 78c(a)(12).
- 6 -
(2)
§ 207.1
The prohibition of this paragraph (f) shall not apply
to credit which is unsecured or secured by collateral other than margin
securities , and which is (i) made to a dealer— ^ to aid in the distribution
of securities to customers not through the medium of a national secu
rities exchange, or (ii) subordinated to the claims of general creditors
by a subordination agreement approved by an appropriate committee of a
national securities exchange or by a "satisfactory subordination agree
ment" as defined in paragraph (e)(7) of Rule 240-15c3-l of the Securi
ties and Exchange Commission.
(g)
Combining purpose credit extended to the same customer.
For the purpose of this part, except for a credit subject to para
graph (d) of this section and § 207.4(a)(2), the aggregate of all out
standing purpose credit extended to a customer by a lender after Feb
ruary 1, 1968, shall be considered a single credit and, except as
provided in paragraphs (d) and (i) of this section, all the collateral
securing such a credit, whether directly or indirectly, in whole or
in part, shall be considered in determining whether the credit com
plies with this part.
(h)
person.
No
Purpose and nonpurpose credit extended to the same
lender shall after February 1, 1968, extend or arrange
for the extension of any purpose credit, or maintain or arrange for
the maintenance of any purpose credit extended after February 1, 1968,
if the credit is secured directly or indirectly, in whole or in part,
6/
As defined in 15 U.S.C. 78c(a)(5).
- 7 -
§ 207.1
by collateral that includes any margin security which also secures,
directly or indirectly, in whole or in part, any other credit in excess
of $5,000 extended to the same customer after February 1, 1968; and no
lender shall have outstanding at the same time to the same customer
both such purpose credit and any such other credit; Provided, That the
prohibitions of this paragraph shall not apply to (i) credit extended
for the purpose of purchasing, constructing, maintaining, or improving
a dwelling which is occupied or to be occupied by the customer as his
principal residence when such credit is secured by a first lien on
such dwelling; or (ii) credit secured by a share account or other claim
acquired by the customer from the lender independently of the credit
and payable (or entitling the holder to a loan thereon) in a dollar
amount determined without regard to the market value of the assets
supporting the claim.
(i)
other collateral.
Purpose credit secured both by margin securities and by
In
the case of any purpose credit extended or
arranged after February 1, 1968, secured directly or indirectly, in
whole or in part, by any margin security, no other collateral shall
have any loan value in respect to such credit for the purpose of this
part:
Provided, however, That a share account or other claim acquired
by the customer from the lender independently of the credit and pay
able (or entitling the holder to a loan thereon) in a dollar amount
determined without regard to the market value of the assets supporting
the claim shall have a maximum loan value as determined by the lender
in good faith.
- 8 -
(j)
rule.
§ 207.1
Withdrawals and substitutions of collateral.
(1)
General
Except as permitted by the next subparagraph and by § 207.4(a),
while a lender maintains any purpose credit extended after February 1,
1968, the lender shall not at any time permit any withdrawal or sub
stitution of collateral unless either (i) the credit would not exceed
the maximum loan value of the collateral after such withdrawal or sub
stitution, or (ii) the credit is reduced by at least the amount by
which the maximum loan value of any collateral deposited is less than
the ’’retention requirement” of any collateral withdrawn.
The retention
requirement of collateral other than margin securities is the same as
its maximum loan value and the retention requirement of collateral
consisting of margin securities or debt securities convertible into
margin securities is prescribed from time to time in § 207.5 (the Sup
plement to Regulation G ) .
(2)
Same-day substitution of collateral.
Except
h i b i t e d by § 207.4(a) a lender may permit a substitution of m a r g i n
securities
effected
in the same day:
by a purchase
Provided,
and sale on orders
executed with
That (i) if the proceeds of the sale
exceed the total cost of the purchase, the credit is reduced by at
least an amount equal to the retention requirement in respect to the
sale less the retention requirement in respect to the purchase, or
(ii) if the total cost of the purchase exceeds the proceeds of the
sale,
the
credit
may
be
increased
by
^n amount no greater than
the maximum loan vrlue of the securities purchased less the maximum
loan value of the securities sold.
If the maximum loan value of the
as pro
- 9 -
§ 207. 1 & § 207.2
collateral securing the credit has become less than the amount of
the credit, the amount of the credit may nonetheless be increased
if there is provided additional collateral having maximum loan value
at least equal to the amount of increase, or the credit is extended
pursuant to § 207.4(a).
§ 207.2
Definitions.
For the purpose of this part, unless the context otherwise
requires:
(a)
Terms herein have the meanings given them in § 3(a) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c (a)).
(b)
The term "in the ordinary course of his business" means
occurring or reasonably expected to occur from time to time in the
course of any activity of a person for profit or the management and
preservation of property or in addition, in the case of a person other
than an individual, carrying out or in furtherance of any business
purpose.
(c)
The "purpose" of a credit is determined by substance
rather than form.
(1)
Credit which is for the purpose, whether immediate,
incidental, or ultimate, of purchasing or carrying a margin security
is "purpose credit", despite any temporary application of funds otherwise.
(2)
Credit to enable the customer to reduce or retire indebt
edness which was originally incurred to purchase a margin security is for
the purpose of "carrying” such a security.
(3)
An extension of credit provided for in a plan, program, or
investment contract offered or sold or otherwise initiated after August 31,1969,
which provides for the acquisition both of any securities described in
- 10 -
§ 707.2
paragraph (d) of this section and of goods, services, property
interests, other securities, or investments, is "purpose” credit.
(d)
Margin security. The term "margin security" means
any equity security^ which is (1) a registered equity security,
(2) an OTC margin stock,
(3) a debt security (i) convertible with
or without consideration, presently or in the future, into a margin
security, or (ii) carrying any warrant or right to subscribe to or
purchase, presently or in the future, a margin security,
such warrant or right,
(4) any
(5 ) a security issued by an investment
company, other than a small business investment company licensed
under the Small Business Investment Company Act of 1958 (15 U.S.C. 661),
registered pursuant to section 8 of the Investment Company Act of 1940
(15 U.S.C. 80a-8), unless at least 95 per cent of the assets of such
0j
company are continuously invested in exempted securities.—
(e)
Registered equity security.
The term "registered
equity security" means any equity security which (1 ) is registered
on a national securities exchange,
(?) has unlisted trading privileges
on a national securities exchange, or (3) is exempted by the Securities
and Exchange Commission from the operation of section 7(c)(?) of the
Securities Exchange Act of 1934 (15 U.S.C. 78g(c)(2)) only to the
extent necessary to render lawful any direct or indirect extension
or maintenance of credit on such security.
(f)
OTC margin stock. - (1) The term "OTC margin stock"
means stock, not traded on a national securities exchange, which the
Board of Governors of the Federal Reserve System has determined to
— ^ As defined in 15 U.S.C. 78c(a)(ll).
As defined in 15 U.S.C. 78c(a)(12).
- 11 -
§ 207.2
have the degree of national investor interest, the depth and breadth
of market, the availability of information respecting the stock and
its issuer, and the character and permanence of the issuer to warrant
subjecting such security to the requirements of this part.
(2)
The Board will from time to time publish a list of OTC
margin stocks as to which the Board has made the determinations
described in subparagraph (1) of this paragraph (f).
Except as pro
vided in subparagraph (4 ) of this paragraph (f), such stocks shall
meet the requirements of § 207.5(d) (the Supplement to Regulation G ) .
(3)
The Board shall from time to time remove from the list
described in subparagraph (2 ) of this paragraph (f) stocks that cease to:
(i)
(ii)
Exist or of
which the issuer ceases to exist, or
Meet substantially, the provisions of subparagraph (1)
of this paragraph (f), and § 207.5(d) (the Supplement to Regulation G ) .
(4)
The foregoing notwithstanding, the Board may, upon its
own initiative, or upon application by any interested party, omit or
remove any stock that is not traded on a national securities exchange
from or add any such stock to such list of OTC margin stocks, if in
the judgment of the
Board such action is necessary or appropriate in
the public interest.
(5)
It shall be unlawful for any person to make, or cause to
be made, any representation to the effect that the inclusion of a
security on such list of OTC margin stocks is evidence that the Board
or the Securities and Exchange Commission has in any way passed upon
the merits of, or given approval to, such security or any transaction
therein.
Any statement in an advertisement or other similar communication
-
12
-
§ 207.2
containing a reference to the Board in connection with such stocks or
such list shall constitute such an unlawful representation.
(g)
The term "purchase11 includes any contract to buy, pur
chase, or otherwise acquire.
(2)
The term "sale" includes any contract to sell or other
wise dispose of.
(h)
The term "customer" includes any recipient of the credit
to whom credit is extended directly or indirectly for the use of the
customer, and also includes any person engaged in a joint venture, or
as a member of a syndicate or a group, with the customer with respect
to a purpose loan.
(i)
The term "indirectly secured" includes, except as provided
in 5 207.4(a)(3), any arrangement with the customer under which the
customer’s right or ability to sell, pledge, or otherwise dispose
of margin securities owned by the customer is in rny w?y restricted
as long as-the crcdit rer.nins outstanding, or under which the
exercise of such right, whether by written agreement or otherwise, is
or may be cause
for acceleration of the maturity of the credit:
Provided, That the foregoing shall not apply (1) if such restriction
arises solely by virtue of an arrangement with the customer which
pertains generally to the customer's assets unless a substantial
part of such assets consists of margin securities, or (°) if the
lender in good faith has not relied upon such securities as collateral
in the extension or maintenance of the particular credit: And provided
further, That the foregoing shall not apply to stock held by the lender
only in the capacity of custodian, depositary or trustee, or under
- 13 -
§3 207.2, 207.3
and 207.4
similar circumstances, if the lender in good faith has not relied upon
such securities as collateral in the extension or maintenance of the
particular credit.
(j)
The term "stock" includes any security commonly known
as a stock; any voting trust certificate or other instrument repre
senting such a security; any security convertible with or without
consideration into such security, certificate, or other instrument, or
carrying any warrant or right to subscribe to or purchase such a
security; or any such warrant or right.
§ 207.3
Reports and records.
(a)
Every person who is registered pursuant to § 207.1(a) of
this part shall within 30 days following the end of each succeeding
calendar quarter file a report on Federal Reserve Form G-4 with the
Federal Reserve Bank of the district in which the principal office
of the lender is located.
(b)
Every person who has registered pursuant to § 207.1(a)
of this part shall maintain such records as shall be prescribed by
the Board of Governors of the Federal Reserve System to enable it to
perform the functions conferred upon it by the Securities Exchange
Act of 1934.
§ 207.4
(15 U.S.C. 78).
Miscellaneous provisions.
(a)
Stock option and employee stock purchase plans.
respect to any credit extended and maintained by a corporation, by
a lender wholly controlled and (except in the case of a lender formed
prior to February 1, 1968, or a trustee) wholly owned by such corpora
tion, or by a lender which is a membership thrift organization whose
In
- 14 -
§ 207.4
membership is limited to employees and former employees of such cor
poration, its subsidiaries, or affiliates (such corporations and
such lenders are both sometimes referred to as "plan-lenders"), to
an officer or employee of the corporation, subsidiary or affilitate
thereof to finance the exercise of rights granted such officer or
employee under a stock option plan or employee stock purchase plan
adopted by the corporation and approved by a majority of its stock
holders to purchase margin 3ccurities of such corporation, subsid
iary or affiliate,
(1)
Sections 207.1(c),
(d), (f), (g), (h), (i), and (j) of
this part shall not apply (i) to any such credit extended prior to
February 1, 1968, to fin nee the exercise of such rights granted to any
netned officer or employee
and effectively exercised by such officer
or employee prior to February 1,
1969
(with respect to credit ex
tended to purchase OTC margin stock or debt securities convertible
into such stock, the dates shall be July 8 , 1968 and July 8 , 1969
respectively),
(ii) to any credit extended prior to February 1, 1969,
to a plan-lender pursuant to a bona fide written commitment in exis
tence on February 1, 1968, to finance the exercise of such rights
and by such plan-lender from the proceeds of such credit to any officer
or employee to finance the exercise of rights granted pursuant to a
stock purchase plan under which the exercise price does not exceed
50 per cent of the market value of the stock subject to purchase,
valued as of the offering date thereof, or (iii) to any credit
extended by a plan-lender pursuant to a stock purchase plan or stock
- 15 -
§ 207.4
option which is qualified or restricted under Internal Revenue Code
§§ 422, 423, and 424, to finance the exercise of such rights granted
prior to February 1, 1968.
(2)
The restrictions imposed by § 207.1(c) and (d) and
§ 207.5 (the Supplement to Regulation G) on the maximum loan value of
margin securities serving as collateral for purpose credit shall not
apply to securities purchased, and serving as direct or indirect
collateral for credit extended, pursuant to such a plan, Provided,
That
(i)
The entire amount of credit extended to any officer or
employee pursuant to this subparagraph (2) in connection with the
exercise of rights under such plan or plans shall be considered a
single credit;
(ii)
At the time when credit is extended in connection with
a plan subject to this subparagraph, (a) the plan-lender computes the
"deficiency”--the amount by which the credit exceeds the maximum loan
value of the collateral as prescribed by § 207.5 (the Supplement to
Regulation G), and (b) the agreement under which the credit is extended
provides that except as permitted by the proviso in subdivision (iii)
of this subparagraph the officer or employee shall, in respect to such
deficiency, for at least 3 years from the extension of the credit,
make equal repayments to the plan-lender at least quarterly and
equivalent to at least 20 per cent of such deficiency per annum, or
such lesser amount as the Board of Governors of the Federal Reserve
System, upon application, may permit;
- 16 -
(iii)
§ 207.4
The officer or employee is not permitted under such
plan or credit agreement to sell, withdraw, pledge, or otherwise
dispose of all or any part of such collateral until (a) all repay
ments have been made for at least the 3 year period provided in
subdivision (ii) of this subparagraph and the deficiency has been
repaid, or (b) as a result of the repayments described in subdivision
(ii) of this subparagraph, and/or of a change in the current market
value of the collateral the maximum loan value of the collateral, as
prescribed by § 207.5 (the Supplement to Regulation G), is at least
equal to the credit which remains owing from the officer or employee
to the plan-lender, whichever shall occur first: Provided, That this
restriction need not apply where such collateral is required to be
sold to meet emergency expenses arising from circumstances not
reasonably foreseeable at the time of the extension of the credit
(for this purpose such emergency expenses shall include the death,
disability, or involuntary termination of employment of the officer
or employee or some other change in his circumstances, involving ex
treme hardship, not reasonably foreseeable at the time the credit is
extended.
The opportunity to realize monetary gain is not a "change
in his circumstances" for this purpose); and
(iv)
At such time as either of the conditions with respect
to sale, withdrawal, pledge, or other disposition of collateral
specified in subdivision (iii) of this subparagraph are satisfied
the credit is thereafter treated as a credit subject to all the re
quirements of this part.
- 17 -
(3)
:• ~C7.4
No extension of credit to a plan-lender to finance such
a plan shall be deemed to be indirectly secured by a margin security
purchased pursuant to the plan:
Provided, That such security is not
repledged by the plan-lender to secure such extension of credit to
the plan-lender and in no event does the person extending such credit
have recourse to such security; And provided further, That the amount
of the credit does not exceed the total amount of credit currently
extended by such plan-lender pursuant to such plan.
(b)
Exv^nsions and renewals.
The renewal or extension of
maturity of a credit need not be treated as the extension of a credit
if the amount of the credit is not increased except by the addition of
interest or service charges on the credit or of taxes on transactions
in connection with the credit.
(c)
Reorganization or recapitalization.
Nothing in this
part shall be construed to prohibit withdrawal or substitution of
securities to enable a customer to participate in a reorganization or
recapitalization.
(d)
Mistakes in good faith.
Failure to comply with this
part due to a mechanical mistake made in good faith in determining,
recording, or calculating any credit, balance, market price, or loan
value, or other similar mechanical mistake, shall not constitute a
violation of this part if promptly after discovery of the mistake
the lender takes whatever action is practicable to remedy the noncompliance.
(e)
Arranging for credit.
A lender may arrange for the
extension or maintenance of credit by any person upon the same terms
and conditions as those upon which the lender, under the provisions of
this part, may himself extend or maintain such credit, but only upon
- 18
§ 207.4 & 207.5
such terms and conditions, except that this limitation shall not
apply with respect to the arranging by a lender for a bank subject
to Part 221 of this Chapter (Regulation U) to extend or maintain
credit on margin securities or exempted securities.
(f)
Combined purchase of mutual funds and insurance.
extension of purpose credit provided for in a plen, program or investment
contract, registered with the Securities and Exchange Commission
under the Securities Act of 1933 (15 U.S.C. 77), which provides for
the acquisition both of a security issued by an investment company
described in paragraph (d)(5) of § 207.2 and an insurance policy or
contract, shall be subject to all the provisions of this part except
that where the credit is secured by the security and does not exceed
the premium on such policy (plus any accrued interest), the maximum
loan value of such security shall be 40 per cent of its current ir.&i'ket
value, as determined by any reasonable method.
§ 207.5
Supplement.
(a)
Maximum loan value of margin securities.
For the pur
pose of § 207.1, the maximum lean value of any margin security, except
convertible securities subject to § 207.1(d), shall be 20 per cent of
its current market value, as determined by any reasonable method.
(b)
Maximum loan v a lue of convertible debt_secur_itie_s
subject to 5 207.1(d).
For the purpose of § 207.1, the maximum loan
value of any security against which credit is extended pursuant to
§ 207.1(d) shall be 40 per cent cf its current market value, as
determined by any reasonable method.
An
- 19 -
(c)
Retention requirement.
§ 207.5
For the purpose of § 207.1,
in the case of a loan which would exceed the maximum loan value of
the collateral following a withdrawal of collateral, the "retention
requirement" of a margin security and of a security against which
credit is extended pursuant to § 207.1(d) shall be 70 per cent of
its current market value, as determined by any reasonable method.
(d)
stock.
Requirements for inclusion on list of OTC margin
Except as provided in subparagraph (4) of § 207.2(f), such
stock shall meet the requirements that:
(1)
The stock is subject to registration under § 12(g)(1) of
the Securities Exchange Act of 1934 (15 U.S.C. 781(g)(1)), or if issued
by an insurance company subject to § 12(g)(2)(G)(15 U.S.C. 781(g)(2)(G)
the issuer had at least $1 million of capital and surplus,
(2)
Five or more dealers stand willing to, and do in fact,
make a market in such stock including making regularly published
bona fide bids and offers for such stock for their own accounts, or
the stock is registered on a securities exchange that is exempted by
the Securities and Exchange Coirmission from registration as a national
securities exchange pursuant to section 5 of the Securities and Exchange
Act of 1934 (15 U.S.C. 78e),
(3)
There are 1500 or more holders of record of the stock
who are not officers, directors, or beneficial owners of 10 per cent
or more of the stock,
(4)
The issuer is organized under the laws of the United
States or a State.2/ and it, or a predecessor in interest, has been in
existence for at least 3 years,
9/
As defined in 15 U.S.C. 78c(a)(16).
5 207.5
- 20 -
(5)
The stock has been publicly traded for at least 6
months, and
(6 )
Daily quotations for both bid and asked prices for
the stock are continuously available to the general public;
and shall meet three of the four additional requirements that:
(7)
There are 500,000 or more shares of such stock out
standing in addition to shares held beneficially by officers, directors,
or beneficial owners of more than 10 per cent of the stock,
(8 )
The shares described in subparagraph (7) of this para
graph have a market value in the aggregate of at least $10 million,
(2)
The minimum average bid price of such stock, as deter
mined by the Board in the latest month, is at least $10 per share, and
(10)
The issuer had at least $5 million of capital, surplus,
and undivided profits.
* * * * * *
2a.
These amendments are promulgated pursuant to section 7
of the Securities Exchange Act of 1934 (15 U.S.C. 78g) as amended by
P.L. 90-437 (82 Stat. 452).
As indicated in the notice of proposed
rule making with respect to these amendments (Federal Register of
February 15, 1969; 34 F.R. 2257), they are designed to regulate the
amount of credit that may be extended by persons other than banks,
brokers, or dealers with respect to certain securities that are not
registered on a national securities exchange.
The criteria that
the Board of Governors will use to select such "over-the-counter"
(OTC) stocks that will be subject to the margin and other requirements
- 21 -
of this regulation will appear in the Supplement to Regulation G
(§ 207.5(d)).
b.
Proposals published in the notice of proposed rule
making that have been revised and the reasons therefor are as
follows:
(1)
This part has been revised throughout to substitute
the phrase "margin security" for "regulated equity security."
The
change is intended to eliminate any implication that such securities
are supervised or have been approved by the Board or by the Secu
rities and Exchenge Commission.
(2)
Section 207.1(a) has been revised to provide that
credit that would otherwise require registration by the person
extending the credit under Regulation G will not have that effect
if secured by collateral that includes OTC margin stock and/or
debt securities convertible into OTC margin stock (but no other
margin security), and if extended prior to July 8 , 1969, the date
these amendments become effective.
(3)
Section 207.1(b) has been revised to clarify that
a registration pursuant to this part is not terminated until the
application has been approved by the Board.
(4)
Section 207.1(c) has been revised to provide that
the term "purpose credit" shall not include credit extended prior
to J u l y 8 , 1 9 6 9, for the purpose of purchasing or carrying OTC
margin stock and/or debt securities convertible into such stock.
(5)
Section 207.1(g) has been revised to clarify that
purpose credit qualifying for exemption from the initial margin
- 22 -
requirements pursuant to § 207.4(a)(2) of this part must be combined
with other purpose credit extended under the provisions of this part,
but not until after such exempt credit satisfies the conditions of
§ 207.4(a)(2)(iii).
(6 )
Section 207.2(a) has been revised to clarify that
all terras used in this part have the meanings given them in sec
tion 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c),
unless otherwise required by the context.
(7)
Section 207.2 has been amended to add a new paragraph
(c) to include within the definition of "purpose credit" an exten
sion of credit provided for in a plan, program, or investment contract
offered or sold or otherwise initiated after August 31, 1969, pursu
ant to which both margin securities and goods, services, property
interests, other securities, or investments would be acquired.
Together with the addition of paragraph (f) to § 207.4, which sets
a 40 per cent maximum loan value on mutual fund shares serving as
collateral for credit extended to finance certain plans for the
combined purchase of mutual funds and insurance, this change
represents a clarification that the Board regards credit available
in connection with equity funding plans or programs as being for the
purpose of purchasing or carrying margin securities.
A proposal
to include such plans or programs within the coverage of the
regulation was published for comment in the Federal Register on
December 17, 1968 (33 F.R. 13629).
(8 )
Section 207.2(d) has been revised to delete a
reference to securities commonly known as equity funding plans
- 23 -
or programs in conformity with the changes described above.
A further
revision indicates that a security issued by a snail business investment
company licensed under the Small Business Investment Company Act of 1958
(15 U.S.C. 661) is not a margin security.
(9)
Section
207.2(f)
has
been revised by transferring
from subparagraph (2) of this section to 5 207.5(d) (the Supplement
to Regulation G) the criteria that will be used by the Board to select
stocks for inclusion on the list of OTC margin stock that will be sub
ject to Regulation G.
This section has been further revised to clarify
that a statement in an advertisement or other similar communication
containing a reference to the Board in connection with the list of
OTC margin stocks would constitute such an unlawful representation as
is referred to in subparagraph (5) of this section.
(10)
Section 207.4(a) has been amended to provide that
credit extended to finance exercise of options or rights to pur
chase OTC margin stock or debt securities convertible into such
stock, granted to named officers or employees prior to July 8, 1969,
will not be subject to initial margin requirements, or to restrictions
on withdrawals and substitutions of collateral, provided such rights are
exercised prior to July 8, 1970.
This section has also been amended to
exempt from the regulation credit extended by a "plan-lender” to fi
nance the .exercise of rights to purchase margin securities pursuant
- 24 -
to stock purchase plans and options that are "qualified" or
"restricted" under Internal Revenue Code §§ 422, 423 and 424,
provided such rights were granted prior to February 1, 1968.
In
addition the section has been further amended to clarify the Board’s
original intention to limit the exemption to credit extended by a
plan-lender who is, if not the corporation or its membership thrift
organization, wholly owned and controlled by such corporation.
Such
limitation would, however, not affect credit extended by a trustee,
or by a plan-lender not wholly owned which was formed prior to
February 1, 1968 (the date after which such credit became subject
to Regulation G).
(11)
Section 207.5 (the Supplement to Regulation G) has
been amended by adding a new paragraph (d) to receive the criteria
transferred from § 207.2(f).
In addition, the criteria have been
revised to include on the list of OTC margin stock only those stocks
whose issuer is organized under the laws of the United States, or
a state thereof, the District of Columbia, Puerto Rico, the Philippine
Islands, the Canal Zone, the Virgin Islands, or any other possession
of the United States.
c.
With the exception of certain changes in § 207.4(a),
relating to the availability of exemption from the margin and other
requirements of the regulation for credit extended in connection
with stock option and employee stock purchase plans, these amendments
were adopted by the Board after consideration of all relevant material
that was presented by interested persons.
In the Board’s view, the
effect of such changes in § 207.4(a) is in part, to relax certain
- 25 -
restrictions and in part to interpret existing rules.
Accordingly,
the Board concluded that the notice and public participation proce
dure contemplated by section 553 of Title 5, United States Code,
was unnecessary with respect to such changes.
Dated at Washington, D. C. this
day of June 1969.
By order of the Board of Governors.
(Signed) Robert P. Forrestal
Robert P. Forrestal,
Assistant Secretary.
TITLE 12 - BANKS AND BANKING
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[ Reg. T ]
PART 220 - CREDIT BY BROKERS AND DEALERS
I.
Effective
July
8 , 1969,
55 220.1 through 220.8 are revised
to read as follows:
Sec.
220.1
220.2
220.3
220.4
220.5
220.6
220.7
220.8
Scope of part.
Definitions.
General accounts.
Special accounts.
Borrowing by members, brokers, and dealers.
Certain technical details.
Miscellaneous provisions.
Supplement.
Authority:
The provisions of this Part 220 issued under sec
tions 7 and 8(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78g,
78h(a)) .
§ 220.1
Scope of part.
This part is issued by the Board of Governors of the Federal
Reserve System (hereinafter called the "Board") pursuant to the Securities
Exchange Act of 1934 (called the "Act" in this part), particularly sections
7 and 8(a) thereof (15 U.S.C. 78g, 78h(a), as amended), and applies to
every broker or dealer, including every member of a national securities
exchange.
§ 220.2
Definitions.
For the purposes of this part, unless the context otherwise
requires:
- 2 ~
(a)
§ 220.2
The termfc herein have the meanings given them in section 3(a)
of the Act (15 U.S.C. 78c(a)).
(b)
The term "creditor" means any broker or dealer including
every member of a national securities exchange.
(c)
The term "customer" (1) includes any person, or any group of
persons acting jointly, (i) to or for whom a creditor is extending,
arranging, or maintaining any credit, or (ii) who, in accordance with the
ordinary usage of the trade, would be considered a customer of the creditor#
and (2 ) includes, but is not limited to'(i) in case the. creditor is a firm,
any partner in the firm who would be considered a customer of the firm
if he were not a partner, and (ii) any joint venture in which a creditor
participates and which would be considered a customer of the creditor
if the creditor were not a participant.
(d)
The term "registered security" means any security which
(1) is registered on a national securities exchange; or (2) in consequence
of its having unlisted trading privileges on a national securities exchange
is deemed, under the provisions of section 12(f) of the Act (15 U.S.C. 78JL),
to be registered on a national securities exchange; or (3) is exempted by
the Securities and Exchange Commission from the operation of section 7(c)(2)
of the Act (15 U.S.C. 78g(c)(2)) only to the extent necessary to render
lawful any direct or indirect extension or maintenance of credit on such
security or any direct or indirect arrangement therefor which would not
have been unlawful if such security had been a security (other than an
exempted security) registered on a national securities exchange.
- 3 -
(e)(1)
§ 220.2
The term "OTC margin stock" — ^ means stock, not traded on
a national securities exchange, which the Board of Governors of the Federal
Reserve System has determined to have the degree of national investor
interest, the depth and breadth of market, the availability of information
respecting the stock and its issuer, and the character and permanence of the
issuer to warrant subjectinj such stock to the requirements of this part.
(2)
The Board will from time to time publish a list of OTC
margin stock as to which the Board has made the determinations described
in subparagraph (1) of this paragraph (e).
Except as provided in sub-
paragraph (4) of this paragraph (e), such stocks shall meet the require
ments of g 220.8(g) (the Supplement to Regulation T ) .
(3)
The Board will from time to time remove from the list
described in subparagraph (2) of this paragraph (e) stocks that cease
to:
(i)
Exist or of
(ii)
which the issuer ceases to exist, or
Meet substantially
the provisions of subparagraph (1)
of this paragraph (e) and of § 220.8(g) (the Supplement to Regulation T).
(4)
The foregoing notwithstanding, the Board may, upon its
own initiative
or upon application by any interested party, omit or
remove any stock that is not traded on a national securities exchange
from or add any such stock to such list of OTC margin stocks if in the
judgment of the Board, such action is necessary or appropriate in the
public interest.
(5)
It shall be unlawful for any creditor to make, or cause
to be made, any representation to the effect that the inclusion of a
security on such list of OTC margin stocks is evidence that the Board
1/
"OTC stock" hereinafter refers to stock traded "over-the-counter."
- 4 -
§ 220.2 fie § 220.3
or the Securities and Exchange Commission has in any way passed upon
the merits of, or given approval to, such security or any transaction
therein.
Any statement in an advertisement or other similar communication
containing a reference to the Board in connection with such stocks or
such list shall constitute such an unlawful representation.
(f)
The term " margin security'* means any registered security
or OTC margin stock.
(g)
The term "exempted security11 has the meaning given it
in section 3(a) of the Act (15 U.S.C. 78c(a)(12)), except that the term
does not include a security which is exempted by the Securities and
Exchange Commission from the operation of section 7(c)(2) of the Act
(15 U.S.C. 78g(c)(2)) only to the extent described in paragraph (d)(3)
of this section.
(h)
The term "non-equity security" means any security other
2/
than an equity security— or an exempted security.
§ 220.3
General accounts .
(a)
Contents of general account.
All financial relations
between a creditor and a customer, whether recorded in one record or in
more than one record, shall be included in and be deemed to be part of
the customer's general account with the creditor, except that the rela
tions which § 2 2 0.4 permits to be included in any special account provided
for by that section may be included in the appropriate special account,
and all transactions in commodities, and, except to the extent provided
in paragraph (b)(2) of § 220.3 , all transactions in c*on-equity securities,
exempted securities, and in other securities having no loan value in a
2/
As defined in 15 U.S.C. 78c(a)(ll).
- 5 -
§ 220.3
general account under the provisions of § 220.3(c) and § 220.8 (the Sup
plement to Regulation T) (except unissued securities, short sales and
purchases to cover short sales, securities positions to offset short
sales, contracts involving an endorsement or guarantee of any put, call,
or other option), shall be included in the appropriate special account
provided for by § 220.4.
During any period when such 5 220.8 specifies
that margin equity securities shall have no loan value in a general
account or special convertible debt security account (sometimes
referred
to herein as "special convertible security account*) subject to § 221.4(j),
any transaction consisting of a purchase of a security other than a pur
chase of a security to reduce or close out a short position shall be
effected in the special cash account provided for by § 220.4(c) or in
some other appropriate special account provided for by § 220.4.
(k)
General rule.
(1) A creditor shall not effect for or
with any customer in a general account, special bond account subject to
§ 220.4(1), or special convertible security account any transaction
which, in combination with the other transactions effected in such
account on the same day, creates an excess of the adjusted debit
balance of such account over the maximum loan value of the securities
in such account, or increases any such excess, unless in connection
therewith the creditor obtains, as promptly as possible and in any
event before the expiration of 5 full business days following the
date of such transaction, the deposit into such account of cash or
securities in such amount that the cash deposited plus the loan value
of the securities deposited equals or exceeds the excess so created
or the increase so caused.
- 6 -
(2)
5 220.3
Except as permitted in this subparagraph, no withdrawal
of cash or exempted
or
margin
securities shall be permissible if
the adjusted debit balance of the account (whether the general account,
the special bond account, or the special convertible security account)
would exceed the maximum loan value of the securities in such account
after such withdrawal.
The exceptions are available only in the event
no cash or securities need to be deposited in such account in connection
with a transaction on a previous
day and none would need to be deposited
thereafter in connection with any withdrawal of cash or securities on
the current day.
The permissible exceptions are (i) registered non-equity
securities or exempted securities held in the general account on March
11,
1968, and continuously thereafter
may be withdrawn upon the deposit
in the account of cash (or margin equity securities counted at their
maximum loan value) at least equal to the "retention requirement" of
such withdrawn securities, or (ii) except as provided in (i) of this
subparagraph, securities having loan value in the general account, the
special bond account,.or the special convertible security account may
be withdrawn upon the deposit in such account of cash or securities
having loan value in such account counted at the maximum loan value
at least equal to the "retention requirement" of those securities, or
(iii) canh may be withdrawn upon the deposit in the general account,
the special bond account, or the special convertible security account
of securities having a maximum loan value in such account at least equal
to the amount of cash withdrawn, or (iv) upon the sale (other than the
short sale) of securities having loan value in the general account,
special bond account, or special convertible security account there may
- 7 -
§ 220.3
be withdrawn in cash an amount equal to the difference between the
current market value of the securities sold and the "retention require
ment" of such securities, or (v) upon the sale (other than the short sale)
of a registered non-equity security or an exempted security that was hej.d
in the general account on March 11, 1968
and continuously thereafter
there may be withdrawn in cash an amount equal to the difference between
the current market value of the securities sold and the "retention require
ment" of those securities as prescribed in § 220.8 (the Supplement to
Regulation T ) .
(3)
Rules for computing the maximum loan value of the securi
in a general account, special bond account, or special convertible security
account and the adjusted debit balance of such account are provided in
paragraphs (c) and (d) of this section, and certain modifications of and
exceptions to the general rule stated in this paragraph are provided in
the subsequent paragraphs of Ckis ESction and in § 220.6 .
(c)
Maximum loan value and current market value.
(1)
maximum loan value of the securities in a general account, special bond
account, or special convertible security account is the sum of the
maximum loan values of the individual securities in such account, includ
ing securities (other than unissued securities) boughfcifior’such account
but not yet debited thereto, but excluding Securities sold for such
account whether or no£ payment has been credited thereto.
(2)
Except as otherwise provided in this paragraph, the
maximum loan value of a security in a general account, special bond
account, or special convertible security account shall be such max
imum loan value as the Board shall prescribe from time to time in
The
- 8 -
5 220.8 (the Supplement to Regulation T ) .
5 220.3
No collateral other than an
exempted security or a registered non-equity security held in such
account on March 11, 1968
and continuously thereafter, or margin
equity security shall have any loan value in a general account except
that a registered equity security eligible for a special convertible
security account pursuant to § 220.4(j) shall have loan value in a
general account only if held in the account on March 11, 1968
and
continuously thereafter.
(3)
A warrant or certificate which evidences only a right to
subscribe to or otherwise acquire any security and which expires within
90 days of issuance shall have no loan value in a general
account,
special bond account, or special convertible security account; but, if
the account contains the security to the holder of which such warrant
or certificate has been issued and such warrant or certificate is held
in an appropriate account maintained by the creditor for the customer
the current market value of such security (if such security is a
margin security) shall, for the purpose -of calculating its maximum
loan value, be increased by the current market value of such warrant
or certificate.
(4)
For the current market value of a security throughout the
day of its purchase or sale, the creditor shall use its total cost or the
net proceeds of its sale, as the case may be, and at any other time shall
use the closing sale price of the security on the preceding business day
as shown by any regularly published reporting or quotation service.
In
the absence of any such closing sale price, the creditor nay use any
reasonable estimate of the market value of such security as of the close
of business on such preceding business day.
v5 220.3
- 9 -
(d)
Adjusted debit balance.
For the purpose of this part,
the adjusted debit balance of a general account, special bond account,
or special convertible security account shall be calculated by taking
the sum of the following items:
(1)
the net debit balance, if any, of such account;
(2)
the total cost of any securities (other than unissued
securities) b o u g h t s u c h
(3 )
account but not yet debited thereto;
the current market value of any securities (other than
unissued securities) sold short in the general account plus, for each
security (other than an exempted security), such amount as the Board
shall prescribed from time to time in 5 220.8 (the Supplement to Regula
tion T) as the margin required for such short sales, except that such
amount so prescribed in such § 2 2 0.8 need not be included when there are
held in the general account the same securities or securities exchange
able or convertible within 90 calendar days, without restriction other
than the payment of money, into such securities sold short;
(4 )
the amount of margin specified by paragraph (h) of this
section for every net commitment in such account in unissued securities,
plus all unrealized losses on each commitment in unissued securities and
minus all unrealized gains (not exceeding the required margin) on each
commitment in unissued securities; and
(5)
the amount of any margin customarily required by the
creditor in connection with his endorsement or guarantee of any put,
call, or other option;
and deducting there from the sum of the following items:
-
10
§ 220.3
-
(6)
the net credit balance, if any, of such account; and
(7)
the net proceeds of sale of any securities (other than
unissued securities) sold for such account but for which payment has
not yet been credited thereto.
In case such account is the account\of a partner of the creditor or the
account of a joint venture in which the creditor participates, the
adjusted debit balance shall be computed according to the foregoing
rule, and the supplementary rules prescribed in § 220.6(a) and (b).
(e)
Liquidation in lieu of deposit.
2/
In any case in which
the deposit required by paragraph (b) of this section, or any portion
thereof, is not obtained by the creditor within the
5-day
period
specified therein, margin non«-exempted securities shall be sold
(or, to the extent that there are insufficient margin nonrexBinpted
securities in the general account, special bond account, or special
convertible security account other liquidating transactions shall be
effected in such account), prior to the expiration of such 5-day.
period, in such amount that the resulting decrease in the adjusted
debit balance of such account exceeds, by an amount at least as great
as such required deposit or the undeposited portion thereof, the
"retention requirement" of any margin or exempted securities sold:
This requirement relates to the action to be taken when a customer
fails to make the deposit required by § 220.3(b), and it is not intended
to countenance on the part of customers the practice commonly known as
"free-riding," to prevent which the principal national securities exchanges
have adopted certain rules. See the rules of such exchanges and § 220.7(e).
- 11 -
§ 220.3
Provided, That a creditor is not required to sell securities or to effect
other liquidating transactions specified by this paragraph in an amount
greater than necessary to eliminate the excess of the adjusted debit
balance of such account over the maximum loan value of the securities
remaining in such account after such liquidation.
(f)
Extensions of time.
In exceptional cases, the 5-day
period specified in paragraph (b) of this section may, on application
of the creditor, be extended for one or more limited periods commensurate
with the circumstances (1) by any regularly constituted committee of a
national securities exchange having jurisdication over the business
conduct of its members, of which exchange the creditor is a member or
through which his transactions are effected, or (2) in instances where
the procedure described above is not readily available or appropriate,
by a committee of a national securities association; Provided, That
such committee is satisfied that the creditor is acting in good faith
in making the application and that the circumstances are in fact ex
ceptional and warrant such action.
(g)
Transactions on atyan day.
For the purposes of paragraph
(b) of this section, the question of whether or not an excess of the ad
justed debit balance of a general account, special bond account, or
special convertible security account over the maximum loan value of
the securities in such account is created or increased on a given day
shall be determined on the basis of all the transactions in the account
on such day exclusive of any deposit of cash, deposit of securities,
covering transaction,or other liquidation that has be^n effected on
- 12 -
§ 220.3
such day, pursuant to the requirement of paragraphs (b) or (e) of this
section, in connection with a transaction on a previous day.
In any
case in which an excess so created, or increase so caused, by transactions
on a given day does not exceed $ 100, the creditor need not obtain the
deposit specified therefor in subparagraph (b)(1) of this section.
Any
transaction which serves to meet the requirements of paragraph (e) of
this section or otherwise serves to permit any offsetting transaction
in an account shall, to that extent, be unavailable to permit any other
transaction in such account.
For the purposes of this part (Regulation T ) ,
if a security has maximum loan value under subparagraph (c)(1) of this
section in a general account, a sale of the same security (even though
not the same certificate) in such account shall be deemed to be a long
sale and shall not be deemed to be or treated as a short sale.
(h)
Unissued securities.
(1)
The amount to be included in
the adjusted debit balance of a general account, special bond account,
or special convertible security account
as the margin required for a
net long commitment in unissued securities shall be the current market
value of the net amount of unissued securities long minus the maximum
loan value which such net amount of securities would have if they were
issued
margin securities held in such account; and the amount to be
so included as the margin required for a net short commitment in unissued
securities shall be the amount which would be required as margin for the
net amount of unissued securities short if such securities were issued
securities and were sold short in such account:
Provided, That no
amount need be included as margin for a net short commitment in unissued
- 13 -
§ 220.3 & § 220.4
securities when there are held in such account securities in respect of
which the unissued securities are to be issued, nor for any net position
in unissued securities that are exempted securities.
(2)
Whenever a creditor, pursuant to a purchase of an uniss
security for a customer, receives an issued security which is not a
margin or exempted security, the creditor shall treat as the margin required
for such purchase, any payment by the customer for such issued security as
a transaction (other than a withdrawal) which increases the adjusted debit
balance of a general account, special bond account, or special convertible
security account by the amount of the payment minus the amount required to
be included in the adjusted debit balafice of such account, at the time of
and in connection with the purchase of the unissued security.
§ 220.4
Special accounts.
(a)
General rule.
(1) Pursuant to this section, a credito
may establish for any customer one or more special accounts.
(2)
Each such special account shall be recorded separately
and shall be confined to the transactions and relations specifically
authorized for such account by the appropriate paragraph of this section
and to transactions and relations incidental to those specifically au
thorized.
An adequate record shall be maintained showing for each such
account the full details of all transactions in the account.
(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
§ 220.4
- 14 -
creditor no general account, special bond account subject to § 220.4(i),
or special convertible security account subject to § 220.4(j).
(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 paragraph of this
section and in §§ 2 2 0 .2 , 220.6 , 220.7, or 2 20.8 , except insofar as
§ 220.3 applies to §§ 220.4(i), and (j).
(b)
Special omnibus account.
In a special omnibus account, a
member of a national securities exchange may effect and finance transactions
for another member of a national securities exchange or a broker or dealer
registered with the Securities and Exchange Commission under section 15
of the Securities Exchange Act of 1934 (15 U.S.C. 78o) from whom the
member receives (1) written notice, pursuant to a rule of the Securities
and Exchange Commission concerning the hypothecation of customers' secu
rities by brokers or dealers (Rule 8c-l (17 CFR § 240.8c-l) or Rule 15c2-l
(17 CFR § 240.15c2-l)), to the effect that all securities carried in*the
account will be carried for the account of the customers of the broker
or dealer and (2) written notice that any short sales effected in the account
will be short sales made in behalf of the customers of the broker or
dealer other than his partners.
No substitutions of collateral securing
credit extended to a broker or dealer not-described in the preceding
sentence shall be permitted after
October
6 , 1 9 6 9 and no such ,c
credit shall be maintained after July 8 , 1970.
(c)
Special cash account.
(1) In a special cash account, a
creditor may effect for or with any customer bona fide cash transactions
in securities in which the creditor may:
H 15 -
(1)
§ 220.4
Purchase any security for, or sell any security to, any
customer, provided funds sufficient for the purpose are already held in
the account or the purchase or sale is in reliance upon an agreement
accepted by the creditor in good faith that the customer will promptly
make full cash payment for' the security and that the customer does not
contemplate selling the security prior to making such payment.
(ii)
Sell any security for, or purchase any security from,
any customer, provided the security is held in the account or the creditor
is informed that the customer or his principal owns the security and the
purchase or sale is in reliance upon an agreement accepted by the creditor
in good faith that the security is to be promptly deposited in the account.
(2)
In case a customer purcha«es a security (other than an
exempted security) in the special cash account and does not make full
cash payment for the security within 7 days after the date on which the
security is so purchased, the creditor shall, except as provided in subparagraphs (3)-(7) of this paragraph, promptly cancel or otherwise liq
uidate the transaction or the unsettled portion thereof.
(3)
If the security when so purchased is an unissued security,
the period applicable to the transaction under subparagraph (2) of this
paragraph shall be 7 days after the date on which the security is made
available by the issuer for delivery to purchasers.
If the security
when so purchased is a ’’when distributed11 security which is to be
distributed in accordance with a published plan, the period applicable
to the transaction under subparagraph (2) of this paragraph shall be
7 days after the date on which the security is so distributed.
If the
- 16 -
§ 220.4
security when so purchased Is a new security issued or to be issued for
the purpose of refunding outstanding securities which mature, or are
to be payable upon presentation for redemption, within 35 days of the
date on which the new security is made available by the issuer for
delivery to purchasers, the period applicable to the transaction under
subparagraph (2) of this paragraph shall be 7 days after such maturity
or payment date:
Provided, That this sentence shall apply only to the
payment of that portion of the purchase price that does not exceed 103
per cent of the amount that will be payable to the purchaser of the new
security upon such maturity of, or payment for, securities owned by
him at the time of the purchase.
(4)
If any shipment of securities is incidental to the con
summation of the transaction, the period applicable to the transaction
under subparagraph (2) of this paragraph shall be deemed to be extended
by the number of days required for all such shipments, but not by more
than 7 days.
(5)
If the creditor, acting in good faith in accordance with
subparagraph (1) of this paragraph, purchases a security for a customer,
or sells a security to a customer, with the understanding that he is to
deliver the security promptly to the customer, and the full cash payment
to be made promptly by the customer is to be made against such delivery,
the creditor may at his option treat the transaction as one to which the
period applicable under subparagraph (2) of this paragraph is not the
7 days therein specified
or sale.
but 35 days after the date of such purchase
- 17 -
(6)
§ 220.4
If an appropriate committee of a national securities
exchange or a national securities association is satisfied that the
creditor is acting in good faith in making the application, that the
application relates to a bona fide cash transaction, and that exceptional
circumstances warrant such action, such committee, on application of the
creditor, (i) may extend
any period specified in subparagraphs (2), (3),
(4 ) or (5 ) of this paragraph for one or more limited periods commensurate
with the circumstances, or (ii), in case a security purchased by the
customer in the special cash account is a margin or exempted security, may
authorize
the transfer of the transaction to a general account, special bond
account, special convertible security account, or special omnibus account,
and the completion of such transaction pursuant to the provisions of this part
relating to such an account.
(7)
The 7-day periods specified in this paragraph refer to 7
full business days.
The 35-day period and the 90-day period specified
in this paragraph refer to calendar days, but if the last day of any such
period is a Saturday, Sunday, or holiday, such period shall be considered
to end on the neat full business day.
For the purposes of this paragraph,
a creditor may, at his option, disregard any sum due by the customer not
exceeding $100.
(8)
Unless funds sufficient for the purpose are already in
the account, no security other than an exempted security shall be pur
chased for, or sold to, any customer in a special cash account with the
creditor if any security other than an exempted security has been purchased
by such customer in such an account during the preceding 90 days, and
- 18 -
§ 220.4
then, for any reason whatever, without having been previously paid for
in full by the customer, the security has been sold in the account or
delivered out to any broker or dealer:
committee of a national securities
Provided, That an appropriate
exchange or a national securities
association, on application of the creditor, may authorize the creditor
to disregard for the purposes of this subparagraph any given instance
of the type therein described if the committee is satisfied that both
creditor and customer are acting in good faith and that circumstances
warrant such authorization.
For the purposes of this subparagraph, the
cancelation of a transaction, otherwise than to correct an error, shall
be deemed to constitute a sale.
The creditor may disregard for the pur
poses of this subparagraph a sale without prior payment provided full
cash payment is received within the period described by subparagraph
(2) of this paragraph and the customer has not withdrawn the proceeds
of sale on or before the day on which such payment (and also final pay
ment of any check received in that connection) is received.
The creditor
may so disregard a delivery of a security to another broker or dealer
provided such delivery was for deposit into a special cash account which
the latter broker or dealer maintains for the same customer and in which
account there are already sufficient funds to pay for the security so
purchased; and for the purpose of determining in that connection the
status of a customer's account at another broker or dealer, a creditor
may rely upon a written statement which he accepts in good faith from
such other broker or dealer.
§ 220.4
- 19 -
(d)
Special arbitrage account.
In a special arbitrage account,
a member of a national securities exchange may effect and finance for any
customer bona fide arbitrage transactions in securities.
For the purpose
of this paragraph, the term "arbitrage" means (1) a purchase or sale of
a security in one market together with an offsetting sale or purchase of
the same security in a different market at as nearly the same time as
practicable,
for the purpose of taking advantage of a difference in prices
in the two markets, or (2) a purchase of a security which is, without
restriction other than the payment of money, exchangeable or convertible
within 90 calendar days following the date of its purchase into a second
security together with an offsetting sale at or about the same time of
such second security for the purpose of taking advantage of a disparity
in the prices of the two securities.
(e)
Special commodity account.
In a special commodity account,
a creditor may effect and carry for any customer transactions in commodities.
(f)
Special miscellaneous account.
In a special miscellaneous
account, a creditor may:
(1)
With the approval of any regularly constituted committee
of a national securities exchange having jurisdiction over the business
conduct of its members, extend and maintain credit to meet the emergency
needs of any creditor;
(2)(i)
Extend and maintain credit, (a) to or for any partner
of a firm which is a member of a national securities exchange to enable
such partner to make a contribution of capital to such firm, or to pur
chase stock in an affiliated corporation of such firm; or (b) to or for
-
20
§ 220.4
-
any person who is or will become the holder of stock of a corporation
which is a member of a national securities exchange to enable such per
son to purchase stock in such corporation, or to purchase stock in an
affiliated corporation of such corporation; provided the lender as well
as the borrower is a partner in such member firm or a stockholder in
such member corporation, or the lender is a firm or a stockholder in
such
member corporation, or the lender is a firm or corporation which
is a member of a national securities exchange and the borrower is a
partner in such firm or a stockholder in such corporation;
(ii)
Extend and maintain subordinated credit to another creditor
for capital purposes:
(£)
Provided, That,
Either the lender or the borrower is a firm or corporation
which is a member of a national securities exchange,
»the other party to
the credit is an affiliated corporation of such member firm or corporation,
and, in addition to the fact that an appropriate committee of the exchange
is satisfied that the credit is not in contravention of any rule of the
exchange, the credit has the approval of such committee, or
(b)
The lender as well as the borrower is a member of such
exchange, the credit has the approval of an appropriate committee of the
exchange, and the committee, in addition to being satisfied that the credit
is not in
contravention of any rule of the exchange, is satisfied that
the credit is outside the ordinary course of the lender's business, and
that, if the borrower's firm or corporation or an affiliated corporation
of such firm or corporation does any dealing in securities for its own
account, the credit is not for the purpose of increasing the amount of
such dealing.
- 21 -
(iii)
§ 220.4
For the purpose of subdivisions (i) and (ii) of this
subparagraph, the term "affiliated corporation" means a corporation all
the common stock of which is owned directly or indirectly by the member
firm or general partners and employees of the firm, or by the member
corporation or holders of voting stock and employees of the corporation
and an appropriate committee of the exchange has approved the member firm's
or member corporation's affiliation with such affiliated corporation.
(3)
Purchase any security from any customer who is a member
of a national securities exchange or a broker or dealer registered with
the Securities and Exchange Commission under section 15 of the Securities
Exchange Act of 1934 (15 U.S.C. 78o), or sell any security to such customer:
Provided, That the creditor acting in good faith purchases or sells the
security for delivery, against full payment of the purchase price, as
promptly as practicable in accordance with the ordinary usage of the
trade;
(4)
Effect and finance, for any member of a national securities
exchange who is registered and acts as lodd-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 partic
ipates, 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;
(5)
Effect transactions for and finance any joint venture or
group in which the creditor participates and in which all participants
are dealers (whether such participants be acting jointly or severally),
-
22
-
§
22 0.4
or any member thereof or participant therein, for the purpose of facil
itating the underwriting or distributing of all or part of an issue of
securities (i) not through medium of a national securities exchange, or
(ii) the distribution of which has been approved by the appropriate
committee of a national securities exchange;
(6 )
Effect for any customer the collection or exchange (other
than by sale or purchase) of securities deposited by the customer speci
fically for such purposes, and (subject to any other applicable provisions
of law) received from or for any customer, and pay out or deliver to or
for any customer, any money or securities;
(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 account, 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 specialist in such securities, or effect and finance, for any joifit
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 specialists.
Such specialist's account
shall be subject to the same conditions to which it would be subject if
y See § 220.7(c).
- 23 -
§ 2 20.4
it were a general account except that if the specialist's exchange, in
addition to the other requirements applicable to specialists, is design
ated by the Board of Governors of the Federal Reserve System as requiring
reports suitable for supplying current information regarding specialists*
use of credit pursuant to this paragraph, the requirements of § 220.6(b)
regarding joint ventures shall not apply to such accounts and the m a x
imum loan value of a registered security in such account shall be as
determined by the creditor in good faith.
(h)
Social
subscriptions accounts.
In a special subscript
account a creditor may effect and finance the acquisition of a margin
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 issuance, and such special sub
scriptions account shall be subject to the same conditions 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 deposited
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 per cent 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 collateral as
prescribed by § 220.8 (the Supplement to Regulation T) and the customer
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Federal
Reserve Bank of St. Louis..................................................... w..................................................." T ~ * ~ !-------------------- ----------------- -------- -----------------------------------■
§ 220*4
shall reduce the credit by an amount equal to at least one-fourth of such
sum by the end of each
of
the 4
succeeding
3-calendar-month periods
or until the credit does not exceed the current maximum loan value of the
collateral, whichever shall occur first, and, if the creditor fails to
obtain the required quarterly reduction or a portion thereof with respect
to a particular
acquisition within 5 full business days after such
reduction is due, the creditor shall promptly liquidate a portion of the
collateral so acquired and apply the proceeds of the sale to reduce the
credit, in an amount equal to at least twice the required payment or portion
thereof for the
first
2
such
liquidations, at least equal to the required
payment or portion thereof for the third such liquidation, and at least
sufficient so that the remaining credit does not exceed the current max
imum loan value of the remaining collateral after the fourth such liquidation:
Provided, That, no such liquidation need be in an amount greater than is
necessary so that the remaining credit does not exceed the maximum loan value
of the remaining collateral determined as of the date the credit was
extended and
(3)
The creditor shall not permit any withdrawal of cash or
securities from the account so long as the remaining credit exceeds the
maximum loan value of the remaining collateral in the account, except
that when the remaining credit extended in connection with a given
acquisition of securities in the account has become equal to or less than
the maximum loan value of such securities as prescribed in § 2 2 0 .8 (the
Supplement to Regulation T) (or in connection with an acquisition after
October 20, 1967, the requirements of subparagraph (2) of this section
- 25 -
§ 220.4
have been fulfilled), such securities shall be transferred to the general
account (or, if eligible, to a special convertible security account pur
suant to § 220.4(j)) together with any remaining portion of such credit.
In order to facilitate the exercise of a right in accordance with the
provisions of this paragraph, a creditor may permit the right to be
transferred from a general account to the special subscriptions account
without regard to any other requirement of this part.
(*■)
Special bond account.
In a special bond account a creditor
may effect and finance transactions in exempted securities and registered
non-equity securities for any customer
(j)
Special convertible debt security account.
(1) In a
special convertible debt security account a creditor may extend credit
on any margin security consisting of s margin debt security (i) con
vertible with or without consideration, presently or in the
future,
into
margin stock or (ii) carrying a warrant or right to subscribe to or
purchase such stock.
(2)
A special convertible debt security account shall be sub
ject to the same conditions to which it would be subject if it were a
general account except that the maximum loan value of the securities
in the account shall be as prescribed from time to time in § 2 2 0.8 (the
Supplement to Regulation T ) .
£/
For maximun loan value of such sieuritiss seo § 220.8(b), the
Supplement to Regulation T.
- 26 -
(3)
§ 220.4
Any security which ceases to be an equity security while
held in this account shall continue to be treated as an equity security
as long as it is continuously held in this account.
(4)
In the event any stock is to be substituted for a security
held in this account, or if a security held in this account is to be used
to offset a short sale in the general account, such security shall there
upon be transferred to the customer's general account against a deposit
of cash or margin securities eligible for an extension of credit in
this account (counted at their maximum loan value) equal to at least the
maximum loan value of the security for which such substitution is made,
without regard to the retention requirement of § 220.3 (b)(2 ).
(k)
Special equity funding account.
In a special equity
funding account a creditor, who is the issuer or a subsidiary or affiliate
of the issuer of a plan, program, or investment contract, registered with
the Securities and Exchange Commission under the Securities Act of 1933
(15 U.S.C. 77), that provides for the acquisition both of a security
issued by an investment company registered pursuant to section 8 of the
Investment Company Act of 1940 (15 U.S.C. 80a-8) and of insurance may
arrange for the extension or maintenance of credit, not in excess of the
premium on such policy (plus any accrued interest), on a security issued
by such an investment company that serves as collateral under such a
plan, program, or investment contract;
Provided, That such credit is
extended or maintained by a lender subject to Part 207 of this Chapter
(Regulation G) or a bank subject to Part 221 of this Chapter (Regulation U).
A creditor, arranging credit in a special equity funding account shall
not extend, arrange, or maintain credit in the general account or any
other special account in §§ 220.3 and 220.4 of this part.
- 27 -
§ 220.5
§ 220.5
Borrowing by members, brokers, and dealers.
(a)
General rule.
It is unlawful for any creditor, directly
or indirectly, to borrow in the ordinary course of business as a broker
or dealer on any registered security (other than an exempted security)
except:
(1)
from or through a member bank of the Federal Reserve System;
(2)
from any nomnember bank which shall have filed with the
or
Board an agreement which is still in force and which is in the form
prescribed by this part; or
(3)
to the extent to which, under the provisions of this part,
loans are permitted between members of a national securities exchange and/
or brokers and/or dealers, or loans are permitted to meet emergency needs.
(b)
Agreements of nonmember banks.
An agreement filed pursuant
to section 8(a) of the Act (15 U.S.C. 78h(a)) by a bank not a member of the
Federal Reserve System shall be substantially in the form contained in Form
F.R. T-2 if the bank has its principal place of business in a territory or
insular possession of the United States, or if it has an office or agency
in the United States and its principal place of business outside the United
States.
The agreement filed by any other nonmember bank shall be in sub
stantially the form contained in Form F.R. T-l.
Any nonmember bank which
has executed any such agreement may terminate the agreement if it obtains
the written consent of the Board.
mation
Blank forms of such agreements, infor
regarding their filing or termination, and information regarding
the names of nonmember banks for which such agreements are in force, may
be obtained from any Federal Reserve Bank.
- 28 -
(c)
§ 220.5 & § 220.6
Borrowing f?om other creditors.
A creditor may borrow
from another creditor in the ordinary course of business as a troker or
dealer on any registered security to the extent and subject to the terms
upon which the latter may extend credit to him in accordance with the
provisions of this part, and subject to any other applicable provisions of
law.
§ 220.6
Certain technica1 details.
(a)
Accounts of partners.
In case a general account, special
bond account, or special convertible security account is the account of
a partner of the creditor, the creditor, in calculating the adjusted debit
balance of such account and the maximum loan value of the securities there
in, shall disregard the partner’s financial relations with the firm as
reflected in his capital and ordinary drawing accounts.
(b)
Contribution to joint venture.
In case a general account,
special bond account, or special convertible security account is the account
of a joint venture in which the creditor participates, the adjusted debit
balance of such account shall include, in addition to the items specified
in § 220.3 (d), any amount by which the creditors contribution to the
joint venture exceeds the contribution which he would have made if he had
contributed merely in proportion to his right to share in the profits of
the joint venture.
(c)
Guaranteed accounts.
No guarantee of a customer's account
shall be given any effect for purposes of this part.
(d)
Transfer of accounts.
(1) In the event of the transfer of
a general account, special bond account, or special convertible security
account from one creditor to another, such account may be treated for the
- 29 -
§ 220.6
purposes of this part as if it had been maintained by the transferee from
the date of its origin:
Provided, That
the transferee accepts in good
faith a signed statement of the transferor that
no cash or securities
need be deposited in such account in connection with any transaction
that has been effected in such account or, in case he finds that it is
not practicable to obtain such a statement from the transferor, accepts
in good faith such a signed statement from the customer.
(2)
In the event of the transfer of a general account, speci
bond account, or special convertible security account, from one customer
to another, or to others, as a bona fide incident to a transaction that
is not undertaken for the purpose of avoiding the requirements of this
part, each such transferee account may be treated by the creditor for
the purposes of this part as if it had been maintained for the transferee
from the date of its origin:
Provided, That
the creditor accepts in
good faith and keeps with such transferee account a signed statement of
the transferor describing the circumstances giving rise to the transfer.
(e)
Reorganizations.
A creditor may, without regard to the
other provisions of this part, effect for a customer the exchange of any
margin or exempted security in a general account, special bond account
or special convertible security account, for the purpose of participating
in a reorganization or recapitalization in which the security is involved:
Provided, That if a non-roar^in non-exempted security is acquired in
exchange the creditor shall not, for a period of 60 days following such
acquisition, permit the withdrawal of such security or the proceeds of
its sale from such account except to the extent that such security or
proceeds could be withdrawn if the security were a margin security.
- 30 -
(f)
§ 220.6
Time of receipt of funds or securities.
For the purposes
of this part, a creditor may, at his option (1) treat the receipt in good
faith of any check or draft drawn on a bank which in the ordinary course
of business is payable on presentation, or any order on a savings bank
with passbook attached which is so payable,as receipt of payment of the
amount of such check, draft, or order; (2) treat the shipment of securities
in good faith with sight draft attached as receipt of payment of the amount
of such sight draft; and (3) in the case of the receipt in good faith of
written or telegraphic notice in connection with a special omnibus account
of a customer not located in the same city that a specified security or
a check or draft has been dispatched to the creditor, treat the receipt
of such notice as receipt of such security, check,
or draft: Provided, how
ever, That if the creditor receives notice that such check, draft, order,
or sight draft described in subparagraphs (1), (2), or (3) of this para
graph is not paid on the day of presentation, or if such security, check,
or draft described in subparagraph (3) of this paragraph is not received
by the creditor within a reasonable tiae, the creditor shall promptly take
such action as he would have been required to take by the appropriate
provisions of this part if the provisions of this paragraph had not been
utilized.
(g)
Interes t , service charges, etc.
(1) Interest on credit
maintained in a general account, special bond account, or special con
vertible security account, communication charges with respect to trans
actions in such account, shipping charges, premiums on securities borrowed
in connection with short sales or to effect delivery, dividends or other
distributions due on borrowed securities, and any service charges (other
-
31
-
§ 220.6
than commissions) which the creditor may impose, may be debited to such account
in accordance with the usual practice and without regard to the other pro*
visions of this part, but such items so debited shall be taken into considera
tion in calculating the net credit or net debit balance of such account.
(2)
A creditor may permit interest, dividends, or other dist
butions received by the creditor with respect to securities in a general
account, special bond account or special convertible security account, to be
withdrawn from such account only on condition that the adjusted debit balance
of such account does not exceed the maximum loan value of the securities in
such account after such withdrawal, or on condition that (i) such withdrawal
is made within 35 days after the day on which, in accordance with the creditor's
usual practice, such interest, dividends, or other distributions are entered
in such account,
(ii) such entry in the account has not served in the mean
time to permit in the account any transaction which could not otherwise have
been effected in accordance with this part, and (iii) any cash withdrawn does
not represent any arrearage on the security with respect to which it was dis
tributed, and the current market value of any securities withdrawn does not
exceed 10 per cent of the current market value of the security with respect
to which they were distributed.
Failure by a creditor to obtain in a general
account, special bond account, or special convertible security account, any
cash or securities that are distributed with respect to any security in
such account shall, except to the extent that withdrawal would be permitted
under the preceding sentence, be deemed to be a transaction in such account
which occurs on the day on which the distribution
£
-
32 -
§ 220.6
is payable and which requires the creditor to obtain in accordance with
§ 220.3(b) a deposit of cash or securities having a maximum loan value
at least as great as that of the distribution.
(h)
Borrowing and lending securities.
Without regard to the
other provisions of this part, a creditor (1) may make a bona fide deposit
of cash in order to borrow securities (whether margin or non-margin)
for the purpose of making delivery of such securities in the case of short
sales, failure to receive securities he is required to deliver, or other
similar cases, and (2) may lend securities for such purpose against such
a deposit.
(i)
Credit for clearance of securities.
The extension or
maintenance of any credit which is maintained for only a fraction of a
day (that is, for only part of the time between the beginning of business
and midnight on the same day) shall be disregarded for the purposes of
this part, if it is incidental to the clearance of transactions in secu
rities directly between members of a national securities exchange or
through an agency organized or employed by such members for the purpose
of effecting such clearance.
(j)
Foreign currency.
If foreign currency is capable of
being converted without restriction into United States currency, a
creditor acting in good faith may treat any such foreign currency in an
account as a credit to the account in an amount determined in accordance
with customary practice.
(k)
Innocent mistakes.
If any failure to comply with this
part results from a mechanical mistake made in good faith in executing
a transaction, recording, determining, or calculating any loan, balance,
- 33 -
§ 220.6 & § 220.7
market price or loan value, or other similar mechanical mistake, the
creditor shall not be deemed guilty of a violation of this part if
promptly after the discovery of such mistake he takes whatever action
may be practicable in the circumstances to remedy such mistake.
§ 220.7
Miscellareous provisions.
(a) Arranging for loans by others.
A creditor may arrange
for the extension cr maintenance of credit to or for any cu^jbomer of such
creditor by av.y person upon the same terms and conditions as those upon
which the creditor, under the provisions of this part, may himself ex
tend or maintain
such credit to such customer, but only upon such terms
and conditions, except
that this limitation shall not apply with respect
to the arranging by a creditor for a bank subject to Part 221 of this
Chapter (Regulation U) to extend or maintain credit on margin securities
or exempted securities.
(b)
Maintenance of credit.
Except as otherwise specifically
forbidden by this part, any credit initially extended without violation
of this part may be maintained regardless of (1) reductions in the customer's
equity resulting from changes in market prices, (2) the fact that any secu
rity in an account ceases to be margin or exempted, and (3) any change
in the maximum loan values or margin requirements prescribed by the Board
under this part.
In maintaining any such credit, the creditor may accept
or retain for his own protection additional collateral of any description,
including non-margin securities.
(c)
Statement of purpose of leavi.
Every extension of credit
on a margin security (other than an exempted securi^z) shall be deemed
to be for the purpose of purchasing or carrying or trading in securities,
unless the creditor has accepted in good faith a written statement to
the contrary in conformity with the requirements of
executed
by
the
customer
and e x e c u t e d
and
faith by the creditor prior to such extension.
F.R. T-4
accepted
in good
The creditor shall
retain such statement in his records for at least
such credit is extinguished.
Form
3 years
after
To accept the customer's statement in
good faith, the creditor must (1) be alert to the circumstances sur
rounding the extension of credit and (2) if he has any information
which would cause a prudent man not to accept the statement without
inquiry, have investigated and be satisfied that the customer's state
ment is truthful.
A creditor may rely upon such a written statement
if accepted in accordance with this paragraph.
Reports.
Every creditor shall make such reports as the
Board may require to enable the Board to perform the functions conferred
upon it by the Act.
(e)
Nothing
Additional requirements by exchanges and creditors.
in this part shall (1) prevent any exchange or national secu
rities association from adopting and enforcing any rule or regulation
further restricting the time or manner in which its members must obtain
initial or additional margin in customer's accounts because of trans
actions effected in such accounts, or requiring such members to secure
or maintain higher margins, or further restricting the amount of credit
which may be extended or maintained by them, or (2) modify or restrict
the right of any creditor to require additional security for the main
tenance of any credit, to refuse to extend credit, or to sell any secu
rities or property held as collateral for any loan or credit extended
- 35 -
§ 220.8
§ 220.8
Supplement.
(a)
Maximum loan value for general accounts.
The maximum
loan value of securities in a general account subject to § 220.3 shall
be:
(1)
of a registered non-equity security held in the account
on March 11, 1968; and continuously thereafter and of a margin equity
security (except as provided in § 220.3(c) and § 220.8(b) and (c)), 20 per
cent of the current market value of such securities.
(2)
of an exempted security held in the account on March 11,
1968, and continuously thereafter the maximum loan value of the security,
as determined by the creditor in good faith.
(b)
Maximum loan valu e f c r a special bond account.
The maximum
loan value of an exempted security and of a registered non-equity secu
rity pursuant to § 220.4(i) shall be the maximum loan value of the secu
rity as determined by the creditor in good faith.
(c)
account .
The
Maximum loan value for special convertible debt security
maximum loan value of a margin security eligible for
a special convertible security account pursuant to § 220.4(j) shall be
40 per cent of the current market value of the security.
(d)
Margin required for short sales.
The amount to be in
cluded in the adjusted debit balance of a general account, pursuant to
§ 220.3(d)(3), as margin required for short sales of securities (other
than exempted securities) shall be 80 per cent of the current market
value of each security.
(e)
Retention requirement.
In the case of an account which
would have an excess of the adjusted debit balance of the account over
- 36 -
§ 220. 8
the maximum loan value of the securities in the account following a with
drawal of cash or securities from the account, pursuant to § 220.3(b)(2):
(1)
The “retention requirement" of an exempted security held
in the general account on March 11, 1968, and continuously thereafter
shall be equal to its maximum loan value as determined by the creditor
in good faith, and the "retention requirement" of a registered non-equity
security held in such account on March 11, 1968, and continuously there
after and of a margin security shall be 70 per cent of the current' market
value of the security.
(2)
In the case of a special bond account subject to § 220.4(i),
the retention requirement of an exempted security and of a registered non
equity security shall be equal to the maximum loan value of the security.
(3)
In the case of a special convertible security account sub
ject to § 220.4(j) which would have an excess of the adjusted debit balance
of the account over the maximum loan value of the securities in the account
following a withdrawal of cash or securities from the account, the retention
requirement of a security having loan value in the account shall be 70 per
cent of the current market value of the security.
(4)
For the purpose of effecting a transfer from a general
account to a special convertible security account subject to §'220.4(j),
the retention requirement of a security described in 5 220.4(j), shall
be 70 per cent of its current market value.
(f)
Security having no loan value in general account.
securities other than an exempted security or registered non-equity
security held in the account on March 11, 1968, and continuously there
after, and a margin security shall have any loan value in a general
No
- 37 -
§ 220.8
account except that a margin security eligible for the special con
vertible security account pursuant to § 220.4(j) shall have loan value
only if held in the account on March 11, 1968, and continuously there
after.
(g)
Requirements for inclusion on list of OTC margin stock.
Except as provided in subparagraph (4) of § 220.2(e), OTC margin stock
shall meet the requirements that:
(1)
The stock is subject to registration under § 12(g)(1) of
the Securities Exchange Act of 1934 (15 U.S.C. 781.(g)(l)), or if issued
by an insurance company subject to § 12(g)(2)(G) (15 U.S.C. 78JL(g)(2)(G)),
the issuer had at least $1 million of capital and surplus,
(2)
Five or more dealers
stand willing to, and do in fact,
make a market in such stock including making regularly published bona
fide bids and offers for such stock for their own accounts, or the stock
is registered on a securities exchange that is exempted by the Securities
and Exchange Commission from registration as a national securities exchange
pursuant to section 5 of the Act (15 U.S.C. 78e),
(3)
There are 1500 or more holders of record of the stock who
are not officers, directors, or beneficial owners of 10 per cent or more
of the stock,
(4)
The issuer is organized under the laws of the United States
or a S t a t e ^ a n d it, or a predecessor in interest, has been in existence
for at least 3 years,
(5)
The stock has been publicly traded for at least 6 months,
and
6/ As defined in 15 U.S.C. 70c(a) (16).
- 38 -
(6)
§ 220.8
Daily quotations for both bid and asked prices for the
stocks are continuously available to the general public;
and shall meet 3 of the 4 additional requirements that:
(7)
There are 500,000 or more shares of such stock outstand
ing in addition to shares held beneficially by officers, directors, or
beneficial owners of more than 10 per cent of the stock,
(8)
The shares described in subparagraph (7) of this paragraph
have a market value in the aggregate of at least
(9)
$10 million,
The minimum average bid price of such stock, as determined
by the Board in the latest month, is at least $10 per share, and
(10)
The issuer had at least $5 million of capital, surplus,
and undivided profits.
* * * * * *
2a.
These amendments are promulgated pursuant to sections
7 and 8 of the Securities Exchange Act of 1934 (15 U.S.C. 78g, 78h)
as amended by P. L. 90-437 (82 Stat. 452).
As indicated in the notice
of proposed rule making with respect to these amendments (Federal
Register of February 15, 1969; 34 F.R. 2261), they are designed to reg
ulate the amount of credit that may be extended by brokers and dealers
with respect to certain securities that are not registered on a national
securities exchange.
The criteria the Board will use to select such
"over-the-counter" (OTC) stocks that will be subject to the margin and
other requirements of the regulation will appear in the Supplement to
Regulation T (§ 22.0.8(g)).
b.
Proposals published in the notice of proposed rule making
that have been revised and the reasons therefor are as follows:
- 39 -
(1)
This part has been revised throughout to substitute the
phrase "margin security" for "regulated security."
This change is
intended to eliminate any implication that such securities are super
vised or have been approved by the Board or by the Securities and
Exchange Commission.
(2)
Section 220.2(a) has been revised to clarify that all
terms used in this part have the meanings given them in section 3(a)
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), unless
otherwise required by the context.
(3)
Section 220.2(c) has been revised to provide that a
person to or for whom a creditor is arranging credit is a "customer"
of the creditor, and to clarify that the term customer includes, but
is not limited to, the type of persons enumerated therein.
(4)
Section 220.2(e) has been revised by transferring from
subparagraph (2) of this section to § 220.8(g) (the Supplement to
Regulation T) the criteria that will be used by the Board to select
stocks for inclusion on the list of OTC stock that will be subject to
Regulation T.
This section has been further revised to clarify that a
statement in an advertisement or other similar communication containing
a reference to the Board in connection with the list of OTC margin stocks
would constitute such an unlawful representation as is referred to in
subparagraph (5) of this section.
(5)
Section 220.4(b) has been revised to clarify that a
member of a national securities exchange may extend exempt credit in
connection with wholesale transactions in the special omnibus account
only to another such member, and a broker or dealer who is registered
- 40
with the Securities and Exchange Commission under section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o).
The proposal's
requirement that such member or broker-dealer certify that he is subject
to the provisions of Regulation T is thereby eliminated.
This section
has been further revised to incorporate language from the notice of
proposed rule making relating to the period of time after which per
sons, failing to qualify for additional extensions of credit under
this section, would no longer be able to make substitution of collateral
nor maintain their credit.
(6)
Section 220.4(f) has been revised to add a requirement
that "C.O.D." transactions in the special miscellaneous account are
available only to members of a national securities exchange or brokerdealers who are registered with the Securities and Exchange Commission
under sedtion 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o).
(7)
Section 220.4(h) has been revised to eliminate an obsolete
provision relating to the effective date of subparagraph (2) of this
section.
(8)
Section 220.4(j) has been revised to insert language,
inadvertently omitted from the text of the proposed amendments but
included in the notice of proposed rule making, which would clarify
that for the purpose of this Part 220, it is immaterial whether a
debt security is convertible with or without consideration, presently
or in the future, into a margin security.
(9)
Section 220.4(k) has been added to permit a creditor
to arrange for the extension or maintenance of credit in connection
with the sale of equity funding plans or programs issued by such
- 41 -
creditor, or a subsidiary or affiliate thereof, on mutual fund shares
which serve as collateral under the plan or program, provided that
the creditor does not extend, maintain or arrange for credit in the
general account or any other special account.
(10)
Section 220.8 (the Supplement to Regulation T) is amended
by adding a new paragraph (g) to receive the criteria transferred from
§ 220.2(e).
In addition, the criteria have been revised
to include only
those stocks whose issuer is organized under the laws of the United States
or a State thereof, the District of Columbia, Puerto Rico, the Philippine
Islands, the Canal Zone, the Virgin Islands, or any other possession of
the United States.
c.
With the exception of changes in § 220.2(c) relating to
the definition of a "customer" of a creditor, these amendments were
adopted by the Board after consideration of all neli^anjt material
that was presented by interested persons.
In the Board's view, the
effect of the changes in § 220.2(c) is to interpret an existing rule.
Accordingly, the Board concluded that the notice and public participation
procedure contemplated by section 553 of Title 5, United States Code,
was unnecessary with respect to such changes.
Dated at Washington, D. C. , this
day of June 1969.
By order of the Board of Governors.
(Signed) Robert P. Forrestal
Robert P. Forrestal,
Assistant Secretary.
TITLE 12 - BANKS AND BANKING
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. U]
PART 221 - CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING
OR CARRYING MARGIN STOCKS
1.
Effective July 8,
1969,
221.1 through 221.4 are rev
to read as follows:
Sec.
221.1
221.2
2?.1.3
221.4
General rule.
Exceptions to general rule.
Miscellaneous provisions.
Supplement.
Authority:
The provisions of this Part 221 issued under section 7
of the Securities Exchange Act of 1934 (15 U.S.C. 78g).
5 221.1
General rule.
(a)
Purpose credit secured by stock.
(1)
Except as provided in
subparagraph (2) of this paragraph (a) and in § 221.3(q) no bank shall extend
1/
any credit secured directly or indirectly—
2/
by any stock—
for the purpose of
3/
purchasing or carrying any margin stock— ' in an amount exceeding the msximum
loan value of the collateral, as prescribed from time to time for stocks in
§ 221.4 (the Supplement to Regulation U) and as determined by the bank in good
faith for credit subject to § 221.3(s) for any collateral other than stocks:
Provided, That unless held as collateral for such credit on October 20, 1967,
and continuously thereafter, any collateral other than stock shall have loan
value for the purpose of this part only as collateral for a credit which is not
1/
As defined in 5 221.3(c).
2/
As defined in § 221.3(1).
3/
Sometimes referred to as a "purpose credit1'.
"margin stock" is defined in § 221.3(v).
See § 221.3(b). The term
§ 221. 1
- 2 -
secured by stock, as described in 3 221.3(s), and any collateral consisting
of convertible debt securities described in 5 221.3(t) shall have loan value
only for the purpose of that section, and not for other credit subject to
this part.
(2)
Credit extended prior to July 3,
1969, for the purpose of pur
chasing or carrying any CTC margin stock~^ or any debt security convertible in
to such stock (and no other margin security) is not purpose credit, except
that with respect to any CTC margin stock such date shall be August 7, 1969.
if extended to a member of a national securities exchange or a broker or
dealer registered under section 15 of the Securities Exchange Act of 1934
(15 U.S.C. 70o).
(b)
Substitutions and withdrawals.
Except as permitted in para
graph (c) of this section, while a bank maintains any credit subject to this
part, whenever extended, the bank shall not at any time permit any withdrawal
or substitution of collateral unless either (1) the credit would not exceed
the maximum loan value of the collateral after such withdrawal or substitution,
or (2) the credit is reduced by at least the amount by which the maximum loan
value of any collateral deposited is less than the "retention requirement" of
any collateral withdrawn.
The "retention requirement" of collateral other than
stock is the same as its maximum loan value and the "retention requirement11 of
collateral consisting of stock is prescribed from time to time in § 221.4 (the
Supplement to Regulation U).
(c)
Same-day transactions.
Except as provided in £ 221.3(r)(l),
a bank may permit a substitution of stock whether margin or non-margin,
effected by a purchase and sale on orders executed within the same day: Provided,
That (1) if the proceeds of the sale exceed the total cost of the purchase, the
4?
As defined in 5 221.3(d)."OTC stock" hereinafter refers to stock traded
"over-the-counter".
- 3 -
§ 2 21 . 1 & 5 221. 2
credit is reduced by at least an amount equal to the "retention requirement"
with respect to the sale less the "retention requirement" with respect to the
purchase, or (2) if the total cost of the purchase exceeds the proceeds of
the sale, the credit may be increased by an amount no greater than the maxi
mum loan value of the stock purchased less the maximum loan value of the
stock sold.
If the maximum loan value of the collateral securing the credit
has become less than the amount of the credit, the amount of the credit may
nonetheless be increased if there is provided additional collateral having
maximum loan value at least equal to the amount of the increase.
(d)
Single credit rule.
For the purpose of this part, except f
credit subject to 5 221.3(s) or (t), the entire amount of the purpose credit
extended to any customer by any bank at any time shall be considered a single
credit; and all the collateral securing such credit shall be considered in
determining whether or not the credit complies with this part.
3 2.21.2
Exceptions to general rule.
Notwithstanding the provisions of § 221.1, a bank may extend and
may maintain any credit for the purpose specified in $ 221.1, without regard
to the limitations prescribed therein, or in 5 221.3(t), if the credit comes
within any of the following descriptions.
(a)
Any credit extended to a bank or to a foreign banking insti
(b)
Any credit extended to a "plan-lender" as defined in § 207.4(a)
tution;
of Part 207 of this Chapter (Regulation G) to finance a plan described therein:
Provided, That in no event does the bank have recourse to any stock purchased
pursuant to such plan;
- 4 -
(c)
5 221. 2
Any credit extended to a dealer, or to two or more dealers, to
aid in the financing of the distribution of securities to customers not
through the medium of a national securities exchange;
(d)
Any credit extended to a broker or dealer that is extended in
exceptional circumstances in good faith to meet his emergency needs;
(e)
Any credit extended to a member of a national securities e x
change or a broker or dealer registered under section 15 of the Securities
Exchange Act of 1S34 (15 U.S.C.7Go) secured by any securities which, according
to written notice received by the bank from the broker or dealer pursuant
to a rule of the Securities and Exchange Commission concerning the hypotheca
tion of customers’ securities (Rule 8c-l (17 CFR § 240.£c-l) or Rule 15c2-l
(17 CFR § 240.15c2-l)), are securities carried for the account of one or
more customers;
(f)
Any credit extended to finance the purchase or sale of securi
ties for prompt delivery which is to ba repaid in the ordinary course of
business upon completion of the transaction: Provided, That the advance is
not made to a person described in § 221.3(q): And provided further, That
it is either (1) extended to a broker or dealer, or (2) extended for a pur
pose other than to enable the borrower to pay for stock purchased in an
account subject to Part 220 of this Chapter (Regulation T);
(g)
Any credit extended against securities in transit, or surren
dered for transfer, which is payable in the ordinary course of business upon
arrival of the securities or upon completion of the transfer: Provided, That
the credit is not extended to a person described in $ 221.3(q): And provided
further, That it is either (1) extended to a broker or dealer, or (2) extended
- 5 -
§ 2 21. 2
for a purpose other than to enable the customer to pay for stock purchased
in an account subject to Part 220 of this Chapter (Regulation T);
(h)
Any credit which is to be repaid on the calendar day on which
it is extended: Provided, That the credit is not extended to a person described
in § 221.3(q): And provided further, That it is either (1) extended to a broker
or dealer, or (2) extended for a purpose other than to enable the customer
to pay for stock purchased in an account subject to Part 220 of this Chapter
(Regulation T);
(i)
Any credit extended outside the States of the United States
and the District of Columbia;
(j)
Any credit extended to a member of a national securities ex
change for the purpose of financing his or his customers' bona fide arbitrage
transactions in securities.
For the purposes of this paragraph, the term
"arbitrage" means (1) a purchase or sale of a security in one market together
with an offsetting sale or purchase of the same security in a different
market at as nearly the same time as practicable, for the purpose of taking
advantage of a difference in prices in the two markets, or (2) a purchase of
a security which is, without restriction other than the payment of money,
exchangeable or convertible within 90 calendar days following the date of its
purchase into a second security together with an offsetting sale at or about
the same time of such second security, for the purpose of taking advantage
of a disparity in the prices of the two securities; and
(k)
Any credit extended to a member of a national securities exchange
for the purpose of financing such members’ transaction as an odd-lot dealer
in securities with respect to which he is registered on such national securities
exchanges as an odd-lot dealer.
§ 221.3
§ 2 21.3
M is c e lla n e o u s p r o v i s i o n s .
(a)
Required statement as to stock-secured credit. In connection
with an extension of credit secured directly or indirectly by any stock, the
bank shall obtain and retain in its records for at least
3 years
after
such credit is extinguished a statement in conformity with the requirements
of Federal Reserve Form U-l executed by the recipient of such extension of
credit (sometimes referred to «s the "customer”) and executed and accepted
in good faith by a duly authorized officer of the bank prior to such extension:
Provided, That this requirement shall not apply to any credit described in para
graphs (o) or (w) of this section or 5 221.2 of this part except for credit described
in paragraphs 221.2(f),
(g), and (h) extended to persons who are not brokers or
dealers subject to Part 220 of this Chapter (Regulation T).
In determining
whether or not an extension of credit is for the purpose specified in § 221.1
or for any of the purposes specified in § 221.2 the bank may rely on the state
ment executed by the customer if accepted in good faith.
m e r ’s statement in good faith, the officer must (1)
To accept the custo
be alert to the circum
stances surrounding the credit and (2) if he has any information which would
cause a prudent man not to accept the statement without inquiry, have investi
gated and be satisfied that the customer's statement is truthful.
(b)
Purpose of a credit.
The "purpose of a credit" is determined
by substance rather than form.
(1)
Credit which is for the purpose, whether immediate, incidental,
or ultimate, of purchasing or carrying a m a r g i n
stock is "purpose credit",
despite any temporary application of funds otherwise.
- 7 -
§ 221. 3
(2) Credit to enable the customer to reduce or retire indebtness which
x*as originally incurred to purchase a margin stock is for the purpose of
"carry
ing" such a security.
(3) An extension of credit provided for in a plan, program, or invest
ment contract offered or sold or otherwise initiated after August 31, 1969,
which provides for the acquisition both of any securities described in paragraph (v)
of this section and of goods, services, property interests, other securities, or
investments, is "purpose credit".
(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 stock owned by the customer is in any way re
stricted so long as the credit remains outstanding, or under which the exercise
of such right, whether by written agreement or otherwise, is or may be cause
for acceleration of the maturity of the credit:* Provided, That the foregoing
shall not apply (1) if such restriction arises solely by virtue of an arrangement
with the customer which pertains generally to the customer's assets unless a sub
stantial part of such assets consists of stock, or (2) if the bank in good faith
has not relied upon such stock as collateral in the extension or maintneance
of the particular credit:
And provided further, That the foregoing shall not
apply to stock held by the bank only in the capacity of custodian, depositary, or
trustee, or under similar circumstances, if the bank in good faith has not relied
upon such stock as collateral in the extension or maintenance of the particular
credit.
OTC m argin stock.
(1) The term "OTC margin stock" means stock,
not
traded on a national securities exchange, which the Board of Governors of the Fed
eral Reserve System h?s determined to have the degree of national investor interest,
the depth and breadth of nurket, the availability of information respecting the
stock and its issuer, and the character and permanence of the issuer to warrant
subjecting such stock to the requirements of this part.
-
8 -
§ 221. 3
(2) The Beard will from time to time publish a list of OTC margin stocks as to
which the Board has made the determination described in subparagraph (1) of this para
graph (d).
Except as provided in subparagraph (4) of this paragraph (.d) such stocks
shall meet the requirements of § 221.4(d) (the Supplement to Regulation U ) .
(3)
The Board will from time to time remove from the list described
in subparagraph (2) of this paragraph (d) stocks that cease to:
(i)
(ii)
Exist or
of which the issuer ceases to exist, or
Meet substantially
this paragraph (d) and of § 221.4(d)
(4)
the provisions of subparagraph (1) of
(the Supplement to Regulation U).
The foregoing notwithstanding, the Board may, upon its own
initiative, or upon application by any interested party, omit or remove any
stock that is not traded on a national securities exchange from or add any
such stock to such list of OTC margin stocks, if in the judgement of the
Board, such action is necessary or appropriate in the public interest.
(5)
It shall be unlawful for any bank to make, or cause to be made,
any representation to the effect that the inclusion of a security on such list
of CTC margin stocks is evidence that the Board or the Securities and Exchange
Commission has in ar.y way passed upon the merits of, or given approval to, such
security or any transaction therein.
Any statement in an advertisement or
other similar communication containing a reference to the Board in connection
with such stocks or such list shall constitute such an unlawful representation.
(e)
Renewals and extensions of maturity.
The renewal or extension
of maturity of a credit need not be treated as the extension of a credit if
the amount of the credit is not increased except by the addition of interest
or service charges in respect to the credit -or of taxes on transactions in
connection with the credit.
- 9 -
(f)
Transfers.
§ 221.3
A bank may, without following the requirements
of this part as to the extension of a credit,
(1)
Permit the transfer of a credit from one customer to another,
or to others: Provided, That a statement by the transferor, describing the
5/
circumstances giving rise to the transfer, is accepted in good faith- and
signed by an officer of the bank as having been so accepted, and kept with
each such transferee account, or
(2)
Accept the transfer of a credit originally extended in conformity
with the requirements of this part directly from another bank: Provided, That
the statement of purpose, executed by the customer in connection with the
original extension of credit and accepted in good faith and signed by an
officer of the bank originally extending such credit in conformity with the
requirements of § 221.3(a), is obtained and kept with each such transferee
account: And provided further, That any transfer pursuant to this paragraph
is made as a bona fide incident to a transaction not undertaken for the pur
pose of avoiding the requirements of this part, the amount of the credit is
not increased, and the collateral for the credit is not changed; and, after
such transfer, a bank may permit such withdrawals and substitutions of collateral
as are permitted in respect to a credit it extends subject to this part.
(g)
Reorgg-rizations and recapitalizations.
Nothing in this part
shall be construed to prevent a bank from permitting withdrawals or substitu
tions of securities to enable a customer to participate in a reorganization
or recapitalization.
£/
As described in § 221.3(a).
-
(h)
10
Mistakes in good faith.
§ 221.3
-
No mistake made in good faith in
connection with the extension or maintenance of a credit shall be deemed to
be a violation of this part.
(i)
Action for bank's own protection.
Nothing in this part shall
be construed as preventing a bank from taking such action as it shall deem
necessary in good faith for its own protection.
(j)
^eP°rt s .
Every bank, and every person engaged in the business
of extending credit who, in the ordinary course of business, extends credit
for the purpose of purchasing or carrying
margin
stock
shall m^ke
such reports as the Board of Governors of the Federal Reserve System may re
quire to enable it to perform the functions conferred upon it by the Securities
Exchange Act of 1934 (15 U.S.C. 78).
(k)
Definitions.
For the purposes of this part, unless the con
text otherwise requires, the terms herein have the meanings assigned to them
in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), ex
cept that the term "bank" does not include a bank which is a member of a
national securities exchange.
(1)
Stock.
The term "stock" includes any security commonly known
as a stock; any voting trust certificate or other instrument representing
such a security; and any security convertible, with or without consideration,
presently or in the future, into such security, certificate, or other instrument,
or carrying any warrant or right to subscribe to or purchase such a security;
or any such warrant or right .
(m)
Credit subject to § 221.1.
A "credit subject to § 221.1"
is a credit which is (1) secured directly or indirectly by any stock (or
made to a person described in paragraph (q) of this section),
(2) extended for
- 11 -
§ 221. 3
the purpose of purchasing or carrying any margin stock, and (3) not excepted
by § 221.1(a)(2) or § 221.2.
(n)
Segregation of collateral.
(1) The bank shall identify all
the collateral used to meet the requirements of § 221.1 (the entire credit
being considered a single credit and collateral being similarly considered,
as required by § 221.1(d)) and shall not cancel the identification of any
portion thereof except in circumstances that would permit the withdrawal of
that portion.
(2)
Such identification mayl*e made by any reasonable method.
Only the collateral required to be so identified shall have
loan value for purposes of 5 221.1 or be subject to the restrictions therein
specified with respect to withdrawals and substitutions; and
(3)
For any credit extended to the same customer that is not sub
ject to § 221.1 (other than a credit described in § 221.2(b),
(d), (f), (g),
or (h)), the bank shall in good faith require as much collateral not so iden
tified as the bank would require (if any) if it held neither the indebtedness
subject to § 221.1 nor the identified collateral.
This shall not be construed,
however, to require the bank, after it has extended any credit, to obtain any
collateral therefor because of
any deficiency in collateral already existing
at the opening of business on June 15, 1959, or
any decline in the value or
quality of the collateral or in the credit rating of the customer.
(4)
Nothing in this part shall require a bank to waive or forego
any lien, and nothing in this part shall apply to a credit extended to enable
the customer to meet emergency expenses not reasonably foreseeable, provided
the extension of credit is supported by a statement executed by the customer
and accepted in good faith and signed by an officer of the bank as having been
so accepted in conformity with the requirements of § 221.3(a).
For this purpose,
§ 221. 3
- 12 -
such emergency expenses shall include expenses arising from circumstances
such as the death or disability of the customer, or some other change in his
circumstances involving extreme hardship, not reasonably foreseeable at the
time the credit was extended.
The opportunity to realize monetary gain is
not a "change in his circumstances" for this purpose.
(0)
Specialist.
In the case of a credit extended to a member of
a national securities exchange who is registered and acts as a specialist in
securities on the exchange for the purpose of financing such member's trans
actions as a specialist in such securities, the maximum loan value of any
stock shall be as determined by the bank in good faith: Provided, That the
specialist's exchange, in addition to other requirements applicable to
specialists, is designated by the Board of Governors of the Federal Reserve
System as requiring reports suitable for supplying current infornation regard
ing specialists' use of credit pursuant to this section.
(p)
Subscriptions issued to stockholders.
An extension of credit
need not comply with the other requirements of this part if it is to enable
the customer to acquire a stock by exercising a right to acquire such stock
which is evidenced by a warrant or certificate issued to stockholders and
expiring within 90 days of issuance: Provided, That:
(1)
Each such acquisition under this paragraph shall be treated
separately, and the credit when extended shall not exceed 75 per cent of the
current market value of the stock so acquired as determined by any reasonable
method;
(2)
After October 20, 1967, at the time credit is extended pursuant
to this paragraph, the bank shall compute the amount by which the credit exceeds
the maximum loan value of the collateral as prescribed by § 221.4 and the
♦ 13 -
§ 221.3
customer shall reduce the credit by an amount at least equal to one-fourth
of such sum by the end of each of the
4
succeeding
3-calendar m o n t h
periods or until the credit does not exceed the current maximum loan value of
the stock, whichever shall occur first, and if the bank fails to obtain the
required quarterly reduction or a portion thereof with respect to a particular
acquisition within 5 full business days after such reduction is due, the
bank shall promptly sell a portion of the collateral so acquired and apply
the proceeds of the sale to reduce the credit, in an amount at least equal to
twice the required payment or portion thereof for the first
2 such reductions,
at least equal to the required payment or portion thereof for the third such
reduction, and at least sufficient so that the remaining credit does not exceed
the current maximum loan value of the remaining collateral after the fourth
such reduction: Provided, That no such reduction need be in an amount greater
than is necessary so that the remaining credit does not exceed the maximum
loan value of the remaining collateral determined as of the date when the cre
dit was extended;
(3)
While the customer has any credit outstanding at the bank under
this paragraph no withdrawal of cash or substitution or withdrawal of stock
used as collateral for such extension of credit shall be permissible, except
that when the remaining credit has become equal to or less than the maximum
loan value of the remaining stock as prescribed for § 221.1 or § 221.3(t) in
§ 221.4 (the Supplement to Regulation U) whichever is applicable (or with
respect to credit extended after October 20, 1967, the requirements of the
preceding clause have been fulfilled) the remaining stock and related credit
shall thereafter be treated as subject to § 221.1 or § 221.3(t), whichever
is applicable, instead of this paragraph.
In order to facilitate the exercise
- 14 -
§ 221.3
of a right under this paragraph, a bank may permit the right to be withdrawn
from a credit subject to § 221.1 without regard to any other requirement of
this part.
(q)
Credit to certain lenders.
Any credit extended to a customer
not subject to this part or to Part 220 of this Chapter (Regulation T) engaged
principally, or as one of the customer’s important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stocks
is a credit for the purpose of purchasing or carrying such stocks unless the
credit and its purposes are effectively and unmistakably separated and dis
associated from any financing or refinancing, for the customer or others, of
any purchasing or carrying of such stocks.
Any credit extended to any such
customer, unless the credit is so separated and disassociated or is excepted
by § 221.2, is a credit "subject to § 221.1" regardless of whether or not
the credit is secured by any stock* and no bank shall extend any such credit
subject to § 221.1 to any such customer, without collateral or without the
credit being secured as would be required by this part if it were secured by
any stock.
Any such credit subject to § 221.1 to any such customer shall be
subject to the other provisions of this part applicable to credit subject to
§ 221.1, including provisions regarding withdrawal and substitution of collateral.
(r)
Corvcr t ible securities.
(1) If,, after June 15, 1959, and
prior to October 21, 1967, credit was extended for the purpose of purchasing
or carrying a security convertible into a stock registered on a national securi
ties exchange and the credit was secured by such a security, and after October
20, 1967, there is substituted any stock as direct or indirect collateral for
such credit, the credit shall thereupon be treated as subject to § 221.1 or
§ 221.3(t), whichever is applicable.
In any such case, the amount of the
§ 221. 3
- 15 -
outstanding credit, or such amount plus any increase therein to enable the
customer to acquire a stock so registered through the conversion of the
security pursuant to its terms, shall not be permitted on the date of such
substitution to exceed the maximum loan value of the collateral for the credit:
Provided, That any reduction in the credit or deposit of collateral required
on that date to meet this requirement may be brought about within 30 days of
such substitution.
(2)
Any credit extended after October 20, 1967, for the purpose of
purchasing or carrying a security convertible into a stock registered on a
national securities exchange, and any credit extended after July 8, 1969,
for the purpose of purchasing or carrying a security convertible into
margin stcck, if the credit is secured, directly or indirectly, by any stock,
is a credit subject to § 221.1 or § 221.3(t), whichever is applicable.
(s)
Credit secured by collateral other than stocks.
A bank may
extend credit for the purpose of purchasing or carrying a margin stock
secured by collateral other than stock, and, in the case of such credit, the
maximum loan value of the collateral shall be as determined by the bank in
good faith.
(t)
Credit on convertible debt securities.
(1) A bank may extend
credit for the purpose specified in § 221.1 on collateral consisting of any
debt security (i) convertible with or without consideration, presently or in
the future, into a margin stock or (ii) carrying a warrant or right to sub
scribe to or purchase such a stock (such a debt security is sometimes referred
to herein as a "convertible security").
(2)
Credit extended under this paragraph shall be subject to the
same conditions as if it were subject to § 221.1 except:
(i) the entire amount
- 16 -
§ 221.3
of such credit shall be considered a single credit treated separately from
the single credit specified in § 221.1(d) and all the collateral securing
such credit shall be considered in determining whether or not the credit com
plies with this part, and (ii) the maximum loan value of the collateral shall
be as prescribed from time to time in § 221.4 (the Supplement to Regulation U ) .
(3)
Any convertible security originally eligible as collateral
for a credit extended under this paragraph shall be treated as such as long
as continuously held as collateral for such credit even though it ceases to
be convertible or to carry warrants or rights.
(4)
In the event that any stock other than a convertible security
is substituted for a convertible security held as collateral for a credit
extended under this paragraph, the stock and any credit extended on it in
compliance with this part shall thereupon be treated as subject to § 221.1
and the credit extended under this paragraph shall be reduced by an amount
equal to the maximum loan value of the security withdrawn.
(u)
Arranging for credit.
No bank shall arrange for the extension
or maintenance of any credit for the purpose of purchasing or carrying any
margin stock, except upon the same terms and conditions on which the bank
itself could extend or maintain such credit under the provisions of this part.
(v)
The term "margin stock" means any stock—
stock registered on a national securities exchange,
which is (1) a
(2) an OTC margin stock~{
(3) a debt security (i) convertible with or without consideration, presently
or in the future, into a margin stock or (ii) carrying any warrant or right
to subscribe to or purchase, presently or in the future, a mrr^in stock,
6/
As defined in § 221.3(1).
jJ
As defined in § 221.3(d).
- 17 -
(4) any such warrant or right,
§ 221.3
(5) any security issued by an investment
company other than a small business investment company licensed under the
Small Business Investment Company Act of 1953 (15 U.S.C. 661) registered
pursuant to § 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8),
unless at least 95 per cent of the assets of such company are continuously
8/
invested in exempted securities- .
(w)
OTC market maker exemption.
(1) In the case of credit ex
tended to an OTC market maker, as defined in subparagraph (2) of this para
graph (w), for the purpose of purchasing or carrying an OTC margin stock in
order to conduct the market making activity of such a market maker, the max
imum loan value of any OTC margin stock (except stock that has been identi
fied as a security held for investment pursuant to a rule of the Commissioner
of Internal Revenue (Regs. Section l-1236-l(d)) shall be determined by the
bank in good faith: Provided, That in respect of each such stock he shall have
filed with the Securities and Exchange Commission a notice of his intent to
begin or continue such market making activity (Securities and Exchange Com
mission Form X-17A-12(1)) and all other reports required to be filed by market
makers in OTC margin stocks pursuant to a rule of the Commission (Rule 17a-12
(17 CFR 240.17a-12)) and shall not have ceased to engage in such market making
activity: And provided further, That the bank shall obtain and retain in its
records for at least
3 years
after
such
credit
is
extinguished ? statement
in conformity with the requirements of Federal Reserve Form U-2, executed by
the OTC market maker who is the recipient of such credit and executed and
accepted in good faith by a duly authorized officer of the bank prior to such
extension.
8J
In determining whether or not an extension of credit is for the
As defined in 15 U.S.C. 73c(a)(12).
§ 2 2 1 .3
-
18
-
purpose o f conducting such market making a c t iv it y , a bank may r e ly on such
a statement i f executed and accepted in accordance with the requirements
o f th is paragraph (w) and § 2 2 1 .3 (a ).
(2 )
An OTC market maker w ith re sp e ct t o an OTC margin stock is
a d ea ler who has and maintains minimum net c a p it a l, as d efin ed in a ru le
o f the S e cu ritie s and Exchange Commission (Rule 1 5 c 3 -l (17 CFR 2 4 0 .1 5 c 3 -l))
or in the c a p ita l ru le s o f a n a tion a l s e c u r it ie s exchange o f which he is a
member i f the members th e r e o f are exempt therefrom by Rule 1 5 c 3 - l( b ) (2) o f
the Commission
(17
CFR 2 4 0 .1 5 c 3 -l(b )(2 )) o f $25,000 plus $5,000 fo r each
such stock in excess o f 5 in re sp ect o f which he has f i l e d and not withdrawn
the n o tice on Commission Form X -17A -12(l) (but in no case does th is
subparagraph ( 2 ) requ ire net c a p ita l o f more than $ 250 , 000 ) , who is in
compliance with such ru le o f the Commission or exchange, and who, except
when such a c t i v i t y is unlaw ful, meets a l l o f the fo llo w in g con d ition s with
re sp e ct to such sto ck : ( i ) he re g u la rly p ublishes bona f i d e , com petitive b id
and o f f e r quotation s in a recogn ized in te r -d e a le r quotation system, ( i i ) he
furn ishes bona f i d e , com petitive b id and o f f e r quotation s t o other brokers
and dealers on req u est, ( i i i ) he is ready, w illin g , and able t o e f f e c t
tra n sa ction s in reasonable amounts, and at his quoted p r ic e s , with other
brokers and d e a le rs, ( iv ) he has a reasonable average rate o f inventory
tu rn ov er.
(
3)
I f a l l or a p o rtio n o f the c r e d it extended pursuant to th is
paragraph (w) ceases to be fo r the purpose s p e c ifie d in subparagraph ( l ) or
the d ealer t o whom the c r e d it is extended ceases t o be an OTC market maker
as d efin ed in subparagraph ( 2 ) , the c r e d it or such p o rtio n th e re o f sh a ll
thereupon be tre a te d as "a c r e d it su b je ct t o § 2 2 1 .1 ."
§ 22 1. 3 & § 221. L
- 19 -
(x)
Combined purchase of mutual funds and insurance.
An extension
of purpose credit provided for in a plan, program or investment contract, registered
with the Securities and Exchange Commission under the Securities Act of 1933
(15 U.S.C. 77), which provides for the acquisition both of a security issued
by an investment company described in subparagraph (5) of paragraph (v) of
this section and an insurance policy or contract, shall be subject to all
the provisions of this part except that where the credit is secured by the
security and does not exceed the premium on such policy (plus any accrued
interest), the maximum loan value of such security shall be 40 per cent of
its current market value, as determined by ony reasonable method.
§ 221.4
Supplement.
(a)
Maximum loan value of stocks.
For the purpose of 5 221.1,
the maximum loan value of any stock, whether or not registered on a national
securities exchange, shall be 20 per cent of its current market value, as
determined by any reasonable method.
(b)
5 221.3(t).
Maximum loan value of convertible debt securities subject to
For the purpose of § 221.3(t), the maximum loan value of any
security against which credit is extended pursuant to § 221.3(t) shall be
40 per cent of its current market value, as determined by any reasonable method.
(c)
Retention requirement.
For the purpose of § 221.1, in the
case of a credit which would exceed the maximum loan value of the collateral
following a withdrawal of collateral, the "retention requirement" of a stock,
whether or not registered on a national securities exchange, and of a conver
tible debt security subject to § 221.3(t), shall be 70 per cent of its current
market value, as determined by any reasonable method.
20
(d)
§ 221.4
Requirements for inclusion on list of OTC margin stock.
as provided in subparagraph (4) of § 221.3(d), OTC margin stock shall meet
the requirements that:
(1)
The stock is subject to registration under § 12(g)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 781^(g)(l)), or if issued by an
insurance company subject to § 12(g)(2)(G) (15 U.S.C. 78]^(g)(2)(G)) the issuer
had at least $1 million of capital and surplus,
(2)
Five or more dealers, stand willing to, and do in fact, make a
market in such stock including making regularly published bona fide bids and
offers for such stock for their own accounts, or the stock is registered on
a securities exchange that is exempted by the Securities and Exchange Commission
from registration as a national securities exchange pursuant to section 5 of
the Act (15 U.S.C. 78e),
(3)
There are 1500 or more holders of record of the stock who
are not officers, directors, or beneficial owners of 10 per cent or more of
the stock,
(4)
The issuer is organized under the laws of the United States
or a State2/ and it, or a predecessor
in interest, has been in existence for
at least 3 years,
(5)
The stock has been publicly traded for at least
6 months
(6)
Daily quotations for both bid and asked prices for the stock
and
are continuously available to the general public,
and shall meet 3 of the 4 additional requirements that:
~
As defined in 15 U.S.C. 78c(a)(16).
Except
- 21 -
(7 )
§ 2 21 . 4
There are 500,000 or more shares o f such stock outstanding in
a d d ition to shares held b e n e f ic ia lly by o f f i c e r s , d ir e c t o r s , or b e n e fic ia l
owners o f more than 10 per cent o f the sto ck ,
(8 )
The shares d escribed in subparagraph (7 ) o f th is paragraph
have a market value in the aggregate o f at le a s t $10 m illio n .
(9 )
The minimum average bid p rice o f such stock as determined by
the Board in the la t e s t month, is at le a s t $10 per share, and
(10)
The issu e r had at le a s t $5 m illio n o f c a p it a l, surplu s, and
unidvided p r o f i t s .
•k
2a.
*
*
*
*
-k
These amendments are promulgated pursuant to s e ctio n 7 o f the
S e cu ritie s Exchange Act o f 1934 (15 U.S.C. 78g) as amended by P.L. 90-437
(82 S ta t. 4 5 2).
As in d ica ted in the n o tice o f proposed ru le making with
resp ect to these amendments (Federal R egister o f February 15, 1969; 34 F.R. 2268),
they are designed to regu la te the amount o f c r e d it extended by banks with resp ect
to c e r ta in s e c u r it ie s that are not r e g is te re d on a n a tion a l s e c u r it ie s exchange.
The c r i t e r i a under which the Board w i l l s e le c t such "o v e r-th e -co u n te r" (OTC)
stock s that w i l l be su b je ct to the margin and other requirements o f the reg u la
t io n w il l appear in the Supplement to Regulation U (5 2 2 1 .4 (d )).
b.
Proposals published in the n o tic e o f proposed ru le making that
have been rev ised and the reasons th e re fo r are as fo llo w s :
(1 )
This part has been rev ised throughout to su b stitu te the phrase
"margin sto ck " fo r "regu lated s t o c k ."
This change is intended to elim in ate
any im p lica tio n that such stock is supervised or has been approved by the
Board or by the S e c u r itie s and Exchange Commission.
-
(2)
22
-
Section 221.1(a) has been amended to add a new subparagraph
(2), and §§ 221.1(d) and 221.3(m) have been revised accordingly to indicate
that credit extended prior to July 8, 1969, the effective date of these
amendments, for the purpose of purchasing or carrying any OTC margin stock
or any debt security convertible into such stock (but no other margin stock)
is not subject to the regulation, except that such date shall be August 7,
1969, with respect to OTC margin stock if extended to a member of a national
securities exchange or a broker or dealer registered under section 15 cf the
Securities Exchange Act of 1934 (15 U.S.C. 78o).
(3)
Section 221.2(e) has been amended to correspond with § 220.4(b)
of this Chapter (Regulation T) by providing that the exception available under
this section applies only to credit extended to a member of a national secu
rities exchange or a broker or dealer registered under section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o).
(4)
Section 221.3 has been amended to add a new paragraph (c)
to include within the definition of "purpose credit" an extension of credit
provided for in a plan, program or investment contract offered or sold or
otherwise initiated after August 31, 1969, pursuant to which both margin
stock and goods, services, property interests, other securities, or invest
ments would be acquired.
Together with the a4dition of paragraph (x) to
this section, which sets a 40 per cent maximum loan value on mutual fund
shares serving as collateral for credit extended to finance certain plans
for the combined purchase of mutual funds and insurance, this change
represents a clarification that the Board regards credit available in
connection with equity funding plans or programs as being for the purpose
of purchasing or carrying margin stock.
A proposal to include such plans
23 -
or programs within the coverage of the regulation was published for comment
in the Federal Register on December 17, 1968 (33 F.R. 18629).
(5)
Section 221.3(d) has been revised by transferring from sub-
paragraph (2) of this section to § 221.4(d) (the Supplement to Regulation U)
the criteria that will be used by the Board to select stocks for inclusion
on the list of OTC stock that will be subject to Regulation U.
This section
has been further revised to clarify that a statement in an advertisement or
other similar communication containing a reference to the Board in connection
with the list of OTC stocks would constitute such an unlawful representation
as is referred to in subparagraph (5) of this section.
(6)
Section 221.3(j) has been amended to clarify that the reports
referred to in this section relate to credit extended for the purpose of
purchasing or carrying all margin stock,
(7)
Section 221.3(k) has been revised to clarify that all terms
used in this part have the meanings given them in section 3(a) of the Secu
rities Exchange Act of 1934 (15 U.S.C.
78c(a)), unless otherwise required
by the context.
(8)
Sections 221.3(1.) and (v) have been amended to delete a
reference to securities commonly known as equity funding plans or programs.
(9)
Sections 221.3(n), 221.3(p), and 221.3(q) have been revised
to eliminate certain obsolete provisions relating to effective dates of
these sections.
(10)
Section 221.3(t) has been revised to insert language inadve
ently omitted from the proposed amendments, but included in the notice of
- 24
proposed rule making, which would clarify that for the purposes of this
Part 221, it is immaterial whether a debt security is convertible with or
without consideration, presently or in the future, into a margin stock.
(11)
Section 221.3(u) has been changed to indicate that a secu
rity issued by a small business investment company licensed under the
Small Business Investment Company Act of 1958 (15 U.S.C. 661) is not a
margin stock.
(12)
Section 221.3(w) has been amended to indicate that a bank
may rely on Federal Reserve Form U-2 to determine whether an extension of
credit is for the purpose of conducting market-making activity described
in this section, if obtained in accordance with the requirements of this
section, and that such credit will be treated as subject to § 221.1 if no
longer for purpose of conducting an OTC market making activity or if the
dealer to whom the credit was extended ceases to be an OTC market maker.
In addition, the definition of an OTC market maker for the purposes of
this section has been clarified.
(13)
Section 221.4(d) is added to receive the criteria transferred
from § 221.3(d).
In addition, the criteria have been revised to include only
those stocks whose issuer is organized under the laws of the United States
or a State thereof, the District of Columbia, Puerto Rico, the Philippine
Islands, the Canal Zone, the Virgin Islands, or any other possession of the
United States.
- 25 -
c.
These amendments were adopted by the Board after consideration
of all relevant material that was presented by interested persons, in ac
cordance with section 553 of Title 5, United States Code.
Dated at Washington D. C., this
day of June, 1969.
By order of the Board of Governors.
(Signed)
Robert P. Forrestal
Robert P. Forrestal,
Assistant Secretary.
@FedFRASER