The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
V
n{ bkX-t/0-4
August 11, 1977
To the Addressee:
Enclosed is a copy of a revised pamphlet entitled "Securities
Credit Transactions," which incorporates Regulations G, T, U, and X of
the Board of Governors of the Federal Reserve System.
Regulation G has
been amended effective August 20, 1976; Regulation T has been amended
effective June 1, 1977; and Regulation U has been amended effective
January 1, 1977.*
The new pamphlet incorporates all amendments to these
regulations issued prior to the respective dates indicated.
Please note that the Supplements to Regulations G and U (Revised
effective August 6, 1976) and Regulation T (Revised effective January 1,
1977 ) are not included in the revised pamphlet and should be retained with
the enclosed pamphlet.
Additional copies of the pamphlet will be furnished upon request.
Circulars Division
FEDERAL RESERVE BANK OF NEW YORK
* The date printed on the cover of the enclosed pamphlet (for Regulation U)
should have been reflected as January 1, 1977.
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
SECURITIES CREDIT TRANSACTIONS
REGULATION X
(12 CFR 224)
Effective November 1, 1971
REGULATION G
(12 CFR 207)
As amended effective August 20, 1976
REGULATION T
(12 CFR 220)
As amended effective June 1, 1977
REGULATION U
(12 CFR 221)
As amended effective June 1, 1977
JUNE 1977
GENERAL CONTENTS
This pamphlet contains die regulations, as listed below, issued by the Board
of Governors of the Federal Reserve System relating to margin requirements
on securities credit transactions.
REGULATION X—RULES GOVERNING BORROWERS WHO
OBTAIN SECURITIES CREDIT
REGULATION G— SECURITIES CREDIT BY PERSONS OTHER
THAN BANKS, BROKERS, OR DEALERS
REGULATION T— CREDIT BY BROKERS AND DEALERS
REGULATION U— CREDIT BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING
MARGIN STOCKS
STATUTORY APPENDIX
Any inquiry relating to Regulations X , G, and U should be addressed to
the Federal Reserve Bank of the Federal Reserve district in which the inquiry
arises. Any inquiry relating to Regulation T should be addressed to a national
securities exchange or a national securities association of which the person
making the inquiry is a member or the facilities of which are used for his
transactions, or, if this is not practicable, the inquiry should be addressed
to the Federal Reserve Bank of the district in which the inquiry arises.
The forms furnished with these regulations are reduced in size and are for
information only. Copies of these forms for actual use and other forms
required by the regulations can be obtained from any Federal Reserve Bank.
DETAILED TABLE OF CONTENTS
REG. X — RULES GOVERNING BORROWERS WHO
OBTAIN SECURITIES CREDIT
Page
Sec. 224.1—Scope of P a r t ........................................... 5
Sec. 224.2—G eneral R u l e ........................................... 6
(a) Credit obtained from within theUnited States. 6
(b) Credit obtained from outside theUnited States. 6
Sec. 224.3—E xemptions .............................................. 7
Sec. 224.4— R eports and R ecords .............................. 7
Sec. 224.5—D efinitions ............................................... 7
(a) Acting on behalf of or inconjunction with ...
(b) Bank ............................................................
(c) Broker/dealer ................................................
(d) Foreign lender ..............................................
(e) G-lender .........................................................
(f) Indirectly secured ..........................................
(g) Lender ...........................................................
(h) Margin security ............................................
(i) Offshore debt security ..................................
(j) Purpose credit ..............................................
(k) Obtain credit .................................................
(l) United States ................................................
7
7
7
7
7
8
8
8
8
8
8
8
Sec. 224.6— Miscellaneous Provisions .................. 8
(a) Innocent mistake............................................ 8
(b) Aiding or abetting ........................................ 8
F orm X-l—R ecord of F acts ofCr ed it ..................... 9
REG. G— SECURITIES CREDIT BY PERSONS OTHER
THAN BANKS, BROKERS, OR DEALERS
Sec. 207.1—G eneral Rule ..................................... 11
(a) Registration .................................................... 11
(b) Termination of registration............................ 11
(c) Definition of lender and applicability of margin
requirements .............................................. 11
(d) Credit on convertible debt securities............. 12
(e) Statements as to purpose of credit................. 12
(f) Credit extended to person subject to
Regulation T .............................................. 12
(g) Combining purpose credit extended to the same
customer ................................................... 13
(h) Purpose and nonpurpose credit extended to the
same person .............................................. 13
(i) Purpose credit secured both by margin securi
ties and by other collateral........................ 13
(j) Withdrawals and substitutionsof collateral .. 13
(1) General rule .......................................... 13
(2) Same-day substitution of collateral......... 13
Sec. 207.2—D efinitions ................................................. 14
(a) Statutory meanings........................................
(b) In the ordinary course of his business...........
(c) Purpose .........................................................
(d) Margin security..............................................
(e) Registered equity security .............................
(f) OTC margin stock ........................................
(g) Purchase and sale..........................................
(h) Customer .......................................................
(i) Indirectly secured ..........................................
(j) Stock ............................................................
(k) Equity ratio ...................................................
14
14
14
14
14
14
15
15
15
15
15
Page
207.3—Reports and Records.......................... 15
Sec. 207.4—Miscellaneous Provisions ................. 15
(a) Stock option and employee stock purchase
plans.......................................................... 15
(b) Extension and renewals .................
17
(c) Reorganization or recapitalization................... 17
(d) Mistakes in good faith..................................... 17
(e) Arranging for credit ...................................... 17
(f) Combined purchase of mutual funds and in
surance ....................................................... 17
(g) Transfers ....................................................... 17
Form G-3—Statement of Purpose........................ 19
[Sec. 207.5—Supplement, containing maximum loan
values, retention requirement, and requirements for
inclusion on list of OTC margin stock, is printed
separately.]
Sec.
REG. T— CREDIT BY BROKERS AND DEALERS
Sec. 220.1—Scope of Pa r t ........................................... 21
Sec. 220.2—D efinitions ................................................. 21
(a) Statutory meanings ........................................ 21
(b) Creditor ......................................................... 21
(c) Customer ....................................................... 21
(d) Registered security ........................................ 21
(e) OTC margin stock ........................................ 21
(f) Margin security ............................................ 22
(g) Exempted security ........................................ 22
(h) Non-equity security........................................ 22
Sec. 220.3—G eneral Accounts ............................. 22
(a) Contents of general account.......................... 22
(b) General rule ................................................. 22
(c) Maximum loan value and current market value 23
(d) Adjusted debit balance ................................... 24
(e) Liquidation in lieu of deposit........................ 24
(f) Extensions of time .......................................... 25
(g) Transactions on given day...............
25
(h) Unissued securities ........................................ 25
(i) Options........................................................... 26
Sec. 220.4—Special Accounts ................................. 27
(a) General rule .................................................. 27
(b) Special omnibus account ............................... 27
(c) Special cash account ...................................... 27
(d) Special arbitrage account ............................... 28
(e) Special commodity account ........................... 29
(f) Special miscellaneous account........................ 29
(g) Specialist’s account ........................................ 30
(h) Special subscriptions account ........................ 30
(i) Special bond account .................................... 31
(j) Special convertible debt security account....... 31
(k) Special insurance premium funding account .. 31
Sec. 220.5—Borrowing by M embers, Brokers, and
D ealers ..................................................... 32
(a) General rule .................................................. 32
(b) Agreements of nonmember banks.................. 32
(c) Borrowing from other creditors..................... 32
REG. T— CREDIT BY BROKERS AND DEALERS (cont.)
Page
Sec. 220.6—Certain Technical Details ................ 32
(a) Accounts of partners ...................................... 32
(b) Contribution to joint venture........................ 32
(c) Guaranteed accounts ..................................... 32
(d) Transfer of accounts ...................................... 32
(e) Reorganizations ............................................. 32
(f) Time of receipt of funds or securities............ 33
(g) Interest, service charges, etc............................. 33
(h) Borrowing and lending securities................... 33
(i) Credit for clearance of securities ................... 33
(j) Foreign currency............................................. 34
(k) Innocent mistakes .......................................... 34
(l) Credit related to portion of a security.......... 34
Sec. 220.7—Miscellaneous Provisions ................. 34
(a) Arranging for loans by others ....................... 34
(b) Maintenance of credit..................................... 34
(c) Statement of purpose of loan........................ 34
(d) Reports........................................................... 35
(e) Additional requirements by exchanges and
creditors ...................................................... 35
(f) Credit by insurance companies that issue
variable annuity contracts .......................... 35
Form T-4—Statement of Purpose....................... 37
[Sec. 220.8—Supplement , containing maximum loan
values, margin for short sales, retention requirement,
and requirements for inclusion on list of OTC margin
stock, is printed separately.]
REG. U— CREDIT BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING MARGIN
STOCKS
Sec. 221.1—G eneral R u l e ........................................... 39
(a) Purpose credit secured by stock.................... 39
(b) Substitutions and withdrawals........................ 39
Page
(c) Same-day transactions..................................... 40
(d) Single credit rule............................................ 40
Sec. 221.2—Exceptions to G eneral Ru l e ............. 40
Sec. 221.3— Miscellaneous Provisions ................. 41
(a) Required statement as to stock-secured credit . 41
(b) Purpose of a credit......................................... 42
(c) Indirectly secured ........................................... 42
(d) OTC margin stock ......................................... 42
(e) Renewals and extensions of maturity............. 42
(f) Transfers ....................................................... 43
(g) Reorganizations and recapitalizations............. 43
(h) Mistakes in good faith................................... 43
(i) Action for bank’s own protection................... 43
(j) Reports........................................................... 43
(k) Definitions ...................................................... 43
(l) Stock............................................................... 43
(m) Credit subject to § 221.1................................. 43
(n) Segregation of collateral................................. 43
(o) Specialist ....................................................... 44
(p) Subscriptions issued to stockholders............... 44
(q) Credit to certain lenders............................... 45
(r) Convertible securities ..................................... 45
(s) Credit secured by collateral other than stocks. 45
(t) Credit on convertible debt securities............... 45
(u) Arranging for credit....................................... 46
(v) Margin stock .................................................. 46
(w) OTC market maker exemption...................... 46
(x) Combined purchase of mutual funds and in
surance ....................................................... 46
(y) Third-market maker exemption...................... 47
(z) Block positioner exemption ............................ 48
F orm U-l—Statement of P urpose ............................ 51
[Sec. 221.4— Supplement , containing maximum loan
values, retention requirement, and requirements for
inclusion on list of OTC margin stock, is printed
separately.]
STATUTORY A P P E N D IX
.................................................. 53
REGULATION X
(12 CFR 224)
Effective November 1, 1971
RULES GOVERNING BORROWERS WHO
OBTAIN SECURITIES CREDIT *
SECTION 224.1—SCOPE OF PART
This Part 224 (Regulation X) contains Rules and
Regulations promulgated by the Board of Gover
nors of the Federal Reserve System (“the Board”)
under the Securities Exchange Act of 1934 as
amended (“the Act”) and applies to all persons
described below who obtain, receive, or enjoy the
beneficial use of credit for the purpose of pur
chasing or carrying securities.*1 For definitions of
technical terms see section 224.5, Parts 207, 220,
and 221 (Margin Regulations G, T, and U) and
the Statutory Appendix. The purpose of this part
(Regulation X) is to prevent the infusion of un
regulated credit obtained both outside and within
the United States into United States securities
markets in circumvention of the provisions of the
Board’s margin regulations or by borrowers falsely
certifying the purpose of a loan or otherwise wil
fully and intentionally evading the provisions of
those regulations. When the term “obtain credit”
is used in this part (Regulation X) it means “ob
tain, receive, or enjoy the beneficial use of credit”
and when the term “purpose credit” is used, it
means “credit for the purpose of purchasing or
carrying securities.” When the term “borrower” is
used, it means a person who obtains credit. This
part (Regulation X) implements section 7(f) of the
Act, and generally applies to borrowers who are:
(a) Persons who obtain credit from within the
United States, or
(b) Those persons who obtain credit from out
side the United States who are:
(1) United States persons,2
(2) Foreign persons who are controlled by
United States persons,3 or
2 F o r d efin ition o f the term “ U n ite d States p e rs o n ,” see
Statutory A p p e n d ix , se ctio n 7 ( f ) ( 2 ) ( A ) .
3F o r d efin ition o f the term “ fo re ig n p e rso n co n tr o lle d
b y a U n ited States p e rs o n ,” see S ta tu tory A p p e n d ix , s e c
tio n 7 ( f ) ( 2 ) ( C ) .
* T h is text co r re s p o n d s to the C o d e o f F ed era l R e g u la
tion s, T itle 12, C h a p ter II, P art 224, cited as 12 C F R 224.
T h e w ord s “ this p a rt,” as used herein , m ean R eg u la tion X .
1 15 U .S .C . 78g.
5
REGULATION X
§ 224.2
(3) Foreign persons acting on behalf of or in
conjunction with 4 United States persons.
SECTION 224.2—GENERAL RULE
(a) Credit obtained from within the United
States. A borrower shall not obtain any purpose
credit from within the United States unless he does
so in compliance with the following conditions:
(1) Credit obtained from a G-lender shall con
form to the provisions of Part 207 (Regulation
G), which is hereby incorporated in this part
(Regulation X). When the term “G-lender” is used
in this part (Regulation X), it means a person who
is not a broker/dealer or bank, who in the ordi
nary course of his business extends, maintains, or
arranges credit that is secured, directly or indi
rectly, in whole or in part, by collateral that in
cludes any margin securities, and who is subject to
the registration requirement of section 207.1(a) of
Part 207 (Regulation G).
(2) Credit obtained from a broker/dealer shall
conform to the provisions of Part 220 (Regula
tion T), which is hereby incorporated in this part
(Regulation X). When the term “broker/dealer”
is used in this part (Regulation X), it means a
person who is a broker or dealer, including every
member of a national securities exchange, and
includes a foreign branch or subsidiary of a
broker/dealer.
(3) Credit obtained from a bank shall conform
to the provisions of Part 221 (Regulation U), ex
cept for section 221.2(i). Except for such section,
Part 221 (Regulation U) is hereby incorporated in
this part (Regulation X). When the term “bank” is
used in this part (Regulation X), it means a bank
that is subject to Part 221 (Regulation U).5
(b) Credit obtained from outside the United
States. (1) A United States person or foreign per
son controlled by a United States person or acting
on behalf of or in conjunction with such a person
shall not obtain any purpose credit6*8from outside
the United States except in compliance with the
following conditions:
(i) Credit obtained from a foreign branch of a
G-lender shall conform to the provisions of Part
207 (Regulation G), except that the requirement
4 F o r d efin ition o f the term “ a ctin g o n b e h a lf o f o r in
c o n ju n c t io n w ith ,” see se ctio n 2 2 4 .5 (a ) o f this part ( R e g u
la tion X ) .
5 F o r d efin ition o f the term “ b a n k ” m ean in g “ ban k
that is s u b ject t o R e g u la tio n U ,” see s ection 2 2 4 .5 ( b ) o f
this part (R e g u la tio n X ) an d S ta tu tory A p p e n d ix , se ctio n
3 (a )(6 ).
8 F o r d efin ition o f the term “ p u rp o s e cr e d it,” see s e c
tion 224.5 ( j ) o f this p a rt (R e g u la tio n X ) .
6
of section 207.1(e) as to obtaining a statement of
the purpose of the credit shall not apply.
(ii) Credit obtained from a foreign branch or
subsidiary of a broker/dealer shall conform to the
provisions of Part 220 (Regulation T).
(iii) Credit obtained from a foreign branch of
a bank shall conform to the provisions of Part 221
(Regulation U) which would apply if the credit
were obtained from the head office of the bank in
the United States, except that the requirement of
section 221.3(a) of Part 221 (Regulation U) as to
obtaining a statement of the purpose of the credit
shall not apply.
(iv) Credit obtained from a foreign lender shall
conform to the provisions of Part 207 (Regula
tion G) which would apply if the person extend
ing, arranging, or maintaining the credit were a
G-lender, except that the requirement of section
207.1(e) of Part 207 (Regulation G) as to obtain
ing a statement of the purpose of the credit shall
not apply. When the term “foreign lender” is used
in this part (Regulation X) it means any person,
other than a United States person, who in the
ordinary course of his business extends, maintains,
or arranges purpose credit outside the United
States and who is not a foreign branch or sub
sidiary of a broker/dealer, a foreign branch of a
bank, or a foreign branch of a G-lender.
(2) The provisions of subparagraph (1) of this
paragraph 224.2(b) shall not apply to credit ex
tended before November 1, 1971, except that as
to credit extended after October 26, 1970, the
requirements as to withdrawals and substitutions
of collateral shall apply after May 1, 1972, as
follows: the requirements in paragraph 207.1 (j)
of Part 207 (Regulation G) shall apply to credit
obtained from a foreign branch of a G-lender or
from a foreign lender; the requirements in para
graph 220.3(b) of Part 220 (Regulation T) shall
apply to credit obtained from a foreign branch or
subsidiary of a broker/dealer; and the require
ments in paragraph 221.1(b) of Part 221 (Regula
tion U) shall apply to credit obtained from a for
eign branch of a bank.
(3) Record of credit. Every borrower subject
to this Part 224 (Regulation X) who obtains any
credit from a lender described in subdivision (i),
(iii), or (iv) of paragraph 224.2(b)(1), if such
credit is secured directly or indirectly, in whole or
in part, by collateral that includes any security,
shall prepare and retain in his records, for at least
6 years after such credit is extinguished, a record
REGULATION X
§§ 2 2 4 .3 - 2 2 4 .5
substantially in conformity with the requirements
of Federal Reserve Form X-l.
SECTION 224.3—EXEMPTIONS
The following classes of persons shall be ex
empted from the provisions of section 7(f) of the
Act and this part (Regulation X) to the extent
described below:
(a) A United States person whose permanent
residence is outside the United States, and who
does not during any calendar year obtain a total
of more than $5,000 or have outstanding at any
time during any calendar year a total of more
than $5,000 in credit obtained outside the United
States to purchase or carry margin securities.
(b) A borrower who is not a United States per
son, but is controlled by or acting on behalf of or
in conjunction with such person, who obtains
credit for the purpose of bona fide clearing, mar
ket making, or arbitrage transactions in off-shore
debt securities that are convertible into margin
securities, except that any credit outstanding
against collateral consisting of such securities shall
be brought into conformity with the other pro
visions of this part (Regulation X )7 upon the con
version of such securities into margin securities.
(c) A borrower who is not a United States per
son, but is controlled by or acting on behalf of
or in conjunction with such person, who obtains
credit from outside the United States, which bor
rower has been exempted by the Board of Gov
ernors of the Federal Reserve System, by Order,
from the requirements of this part (Regulation
X), either unconditionally or upon specified terms
and conditions or for stated periods, upon a find
ing that exceptional circumstances warrant the
granting of such an exemption, and that the ex
emption is consonant with the purposes of sec
tion 7(f) of the Act and the provisions of this part
(Regulation X).
SECTION 224.4—REPORTS AND RECORDS
Every borrower described in section 224.1 who
obtains any credit that is secured directly or in
directly, in whole or in part, by collateral that
includes any securities, shall maintain such rec
ords and file such reports as may be prescribed by
the Board of Governors of the Federal Reserve
System to enable it to perform the functions con
ferred upon it by the Act.7
7In clu d in g Parts 207, 220 , o r 221
an d U ) w h ere a p p lica b le .
SECTION 224.5—DEFINITIONS
Unless the context otherwise requires, or it is
otherwise specified herein, the terms used in and
for the purposes of this part (Regulation X) have
the meanings given them in this section 224.5, in
sections 3(a) or 7(f) of the Act, or in Parts 207,
220, or 221 (Regulations G, T, or U). The rele
vant portions of sections 3(a) and 7(f) of the Act
are set forth in the Statutory Appendix. In the
case of inconsistency between definitions appear
ing in this section 224.5 and those appearing in
Parts 207, 220, or 221 (Regulations G, T, or U),
the definition appearing in the regulation that ap
plies to the particular credit involved, whether
Parts 207, 220, or 221 (Regulations G, T, or U),
shall prevail.
(a) The term “acting on behalf of or in con
junction with” in reference to a foreign person
means obtaining credit for the purpose of pur
chasing or carrying a security in which, or in the
income or gains or losses from which, a United
States person or a foreign person controlled by a
United States person has a substantial direct or
indirect beneficial interest. Absent these factors
the term does not include an interest derived solely
from the ownership of less than 50 per cent of the
outstanding capital stock issued by such foreign
person who is obtaining such credit.
(b) The term “bank” means a bank as defined
in section 3(a)(6) of the Act, including a foreign
branch of a bank, except that such term does not
include a bank which is a member of a national
securities exchange, a foreign affiliate of a bank,
or a foreign bank.
(c) The term “broker/dealer” means any broker
or dealer including every member of a national
securities exchange, and includes a foreign branch
or subsidiary of a broker/dealer.
(d) The term “foreign lender” means a person,
other than a United States person, who in the
ordinary course of his business extends, maintains,
or arranges purpose credit outside the United
States and who is not a foreign branch or sub
sidiary of a broker/dealer, a foreign branch of a
bank, or a foreign branch of a G-lender.
(e) The term “ G-lender” means a person who
is not a broker/dealer or bank, who in the ordi
nary course of his business extends, maintains, or
arranges credit that is secured, directly or in
directly, in whole or in part, by collateral that
includes any margin securities, and who is sub
(R e g u la tio n s G , T ,
7
REGULATION X
§ 224.6
stance rather than form. The following are some
examples of purpose credit:
(1) Credit which is for the purpose, whether
immediate, incidental, or ultimate, of purchasing
or carrying a security is “purpose credit,” despite
any temporary application of the funds otherwise.
(2) Credit to enable the borrower to reduce or
retire indebtedness which was originally incurred
to purchase a security is for the purpose of “carry
ing” such a security.
(3) Credit that is secured directly or indirectly,
in whole or in part, by collateral that includes any
securities, is presumed to be for the purpose of
purchasing or carrying securities, unless the bor
rower has compiled with the requirements of Part
207 (Regulation G), Part 220 (Regulation T), or
Part 221 (Regulation U) as to the statement of
the purpose of a credit, if such requirements are
applicable, or in the case of credit obtained from
a foreign lender, can furnish satisfactory evidence
of the use of the credit for a purpose other than
purchasing or carrying securities.
(4) 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 and of goods, services, property inter
ests, or investments.
(k) The term “ obtain credit” means to obtain,
receive, or enjoy the beneficial use of credit.
(l) The term “ United States” includes any State
of the United States, the District of Columbia,
Puerto Rico, the Canal Zone, the Virgin Islands,
or any other possession of the United States.
SECTION 224.6—MISCELLANEOUS
PROVISIONS
(a) Innocent mistake. An innocent mistake
made in good faith by a borrower in connection
with the obtaining of a credit shall not be deemed
to be a violation of this part (Regulation X) if
promptly after discovery of the mistake the bor
rower takes whatever action is practicable to
remedy the non-compliance.
(b) Aiding or abetting. Any person who wil
fully aids or abets the violation by any other per
son of any provision of this part (Regulation X)
shall be deemed to be in violation of this part
(Regulation X). For the purpose of this para
graph, the term “aids or abets” shall include, but
not be limited to, counsels, commands, induces, or
procures.
ject to the registration requirement of section
207.1(a) of Part 207 (Regulation G).
(f) The term “indirectly secured” includes any
arrangement with the lender under which the right
or ability to sell, pledge, or otherwise dispose of
securities owned by the borrower (or by any other
person who has made the use of such securities
available to the borrower) is in any way restricted
as long as the credit remains outstanding, or under
which the exercise of such right, whether by writ
ten agreement or otherwise, is or may be cause
for acceleration of maturity of the credit. The
foregoing shall not apply, however—
(1) if such restriction arises solely by virtue of
an arrangement with the lender which pertains
generally to the borrower’s assets unless a sub
stantial part of such assets consists of margin
securities, or
(2) if the lender in good faith has not relied
upon such securities as collateral in the extension
or maintenance of the particular credit, or
(3) to securities held by the lender only in the
capacity of custodian, depositary, or trustee, or
under similar circumstances, if the lender in good
faith has not relied upon such securities as col
lateral in the extension or maintenance of the
particular credit.
(g) The term “ lender” means a person who in
the ordinary course of his business extends, main
tains, or arranges for credit, including a G-lender,
a broker/dealer, a bank, and a foreign lender.
(h) The term “ margin security” shall have the
meaning of “margin security” as defined in sec
tion 207.2(d) of Part 207 (Regulation G) if the
borrower is obtaining credit from a G-lender or
a foreign lender, the meaning of “margin security”
as defined in section 220.2(f) of Part 220 (Regu
lation T) if the borrower is obtaining credit from
a broker/dealer, and the meaning of “margin
stock” as defined in section 221.3(v) of Part 221
(Regulation U) if the borrower is obtaining credit
from a bank.
(i) The term “offshore debt security” as to this
part (Regulation X) means a debt security offered
only outside the United States, the purchase of
which by a United States person would give rise
to a liability under the Interest Equalization Tax
(26 U.S.C. 4911 e ts e q ).
(j) The term “purpose credit” means credit for
the purpose of purchasing or carrying securities.
The purpose of a credit is determined by sub
8
F .R . F orm X - l
11-71
SPECIMEN ONLY
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
RECORD WHICH BORROWERS ARE REQUIRED TO MAKE AND MAINTAIN
OF FACTS CONCERNING CREDIT COLLATERALIZED BY SECURITIES
W H EN SUCH CREDIT IS OBTAINED FROM
OUTSIDE THE UNITED STATES
♦ PURSUANT TO REGULATION X
“RULES GOVERNING BORROWERS WHO OBTAIN SECURITIES CREDIT”
(FEDERAL RESERVE FORM X-l)
A FALSE OR DISHONEST STATEMENT BY A BORROWER ON THIS FORM OR A N Y SCHEDULE
THERETO M A Y BE PUNISHABLE BY FINE OR IMPRISONMENT
(U.S. CODE, TITLE 15, SECTION 78ff AND TITLE 18, SECTION 1001)
Unless specifically exempted from the provisions of Regulation X, the following borrowers must complete
this record or a record substantially in conformity with this form at or prior to the time when credit is
obtained from any source outside the United States, other than a foreign branch or subsidiary of a United
States broker or dealer who is subject to Regulation T, if the credit is secured in any way by collateral
that includes any United States security or security registered on a national securities exchange:
United States persons,
Foreign persons who are controlled by United States persons, or
Foreign persons acting on behalf of or in conjunction with United States persons.
Date credit obtained................................................ Amount of credit $.........................................................
Purpose of this credit (state in detail) .............................................................................................................
Credit is secured by following securities (attach schedule including name of issuer, type or class of
securities, number of shares, and market value on date credit is obtained) ...................................................
Name and address of lender extending credit
Name and address of United States person the borrower is controlled by, or is acting on behalf of or in
conjunction with, if applicable (such person must obtain and retain a copy of the filled in form) ..............
Name, address, and occupation of any person arranging credit
The undersigned hereby certifies and affirms that to the best of my (our) knowledge and belief the infor
mation contained herein is true, accurate, and complete.
SIGNED ......................................................................
SIGNED ....................................
.............................
(M anual signature) (Date)
(Manual signature) (Date)
(Type or print name)
(Type or print name)
Address of borrower...........................................................................................................................................
* C opies o f R egu la tion X m a y be ob ta in ed fr o m a n y F ed era l R eserv e B ank in the U nited S tates and are a va ila b le at U nited
S tates E m b a ssies and con su la r posts.
THIS FORM MUST BE RETAINED BY THE BORROWER AND BY ANY UNITED STATES
PERSON REQUIRED TO OBTAIN AND RETAIN A COPY FOR AT LEAST 6
YEARS AFTER THE TERMINATION OF THIS CREDIT
9
The terms used on this record have the meanings given them below; for additional defi
nitions, please refer to section 224.5 of Regulation X , section 3(a) or 7(f) of the Securi
ties Exchange Act of 1934 as amended, or Regulations G, T, or U issued by the Board
of Governors of the Federal Reserve System.
The term “ United States person” includes a person which is organized or exists under the laws of
any State or, in the case of a natural person, citizen or resident of the United States; a domestic estate;
or a trust in which one or more of the foregoing persons has a cumulative direct or indirect beneficial
interest in excess of 50 per centum of the value of the trust.
The term “ foreign person controlled by a United States person” includes any noncorporate entity in
which United States persons directly or indirectly have more than a 50 per centum beneficial interest, and
any corporation in which one or more United States persons, directly or indirectly, own stock possessing
more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more
than 50 per centum of the total value of shares of all classes of stock.
The term “acting on behalf of or in conjunction with” in reference to a foreign person means obtain
ing credit for the purpose of purchasing or carrying a security in which, or in the income or gains or
losses from which, a United States person or a foreign person controlled by a United States person has
a substantial direct or indirect beneficial interest. Absent these factors the term does not include an
interest derived solely from the ownership of less than 50 per cent of the outstanding capital stock
issued by such foreign person who is obtaining such credit.
The term “obtain credit” means to obtain, receive, or enjoy the beneficial use of credit.
The term “United States” includes any State of the United States, the District of Columbia, Puerto
Rico, the Canal Zone, the Virgin Islands, or any other possession of the United States.
The term “ lender” means a person who in the ordinary course of his business extends, maintains, or
arranges for credit, including a G-lender, a broker/dealer, a bank, and a foreign lender.
The term “ G-lender” means a person who is not a broker/dealer or bank, who in the ordinary course
of his business extends, maintains, or arranges credit that is secured, directly or indirectly, in whole
or in part, by collateral that includes any margin securities, and who is subject to the registration re
quirement of section 207.1(a) of Part 207 (Regulation G).
The term “bank” means a bank as defined in section 3(a) (6) of the Securities Exchange Act of 1934,
including a foreign branch of a bank, except that such term does not include a bank which is a member
of a national securities exchange, a foreign affiliate of a bank, or a foreign bank.
The term “ foreign lender” means a person, other than a United States person, who in the ordinary
course of his business extends, maintains, or arranges purpose credit outside the United States and who
is not a foreign branch or subsidiary of a broker/dealer, a foreign branch of a bank, or a foreign branch of
a G-lender.
The term “arranging for credit” refers to any activity in relation to the credit absent which the credit
would not be obtained or any participation indispensable and necessary to the completion of the credit
transaction.
10
REGULATION G
(12 CFR 207)
As amended effective August 20, 1976
SECURITIES CREDIT BY PERSONS OTHER THAN
BANKS, BROKERS, OR DEALERS *
endar months, extended or arranged for the exten
sion or maintenance of and has not had more than
$200,000 of credit outstanding at any time during
such period, 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) Definition of lender and applicability of
margin requirements. Any person 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 (here
inafter 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
“lender” 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 purpose
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 Supple
ment to Regulation G), or as determined by the
SECTION 207.1—GENERAL RULE
(a) Registration. Every person who, in the ordi
nary course of his business,1 during any calendar
quarter ended after June 30, 1976, extends or
arranges for the extension of a total of $100,000
or more, or has outstanding at any time during the
calendar quarter, a total of $500,000 or more, in
credit, secured directly or indirectly,*12 in whole or in
part, by collateral that includes any margin securi
ties,3 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 require
ments, register with the Board of Governors of the
Federal Reserve System by filing a statement in con
formity 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.
(b) Termination of registration. Any person so
registered who has not, during the preceding 6 cal
* T h is text co r re sp o n d s to the C o d e o f F ed era l R eg u la
tion s, T itle 12, C h a p ter II, Part 207, cited as 12 C F R 207.
T h e w ord s “ this p a rt” as used herein , m ean R eg u la tion G .
1S ee § 2 0 7 .2 ( b ) .
2 See § 2 0 7 .2 ( i ) .
8S ee § 2 0 7 .2 ( d ) .
11
REGULATION G
§ 207.1
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 securi
ties convertible into such stock shall not be deemed
to be purpose credit: A n d provided further, That
any collateral consisting of convertible securities
described in paragraph (d) of this section shall
have loan value only as provided in that para
graph.
(d) Credit on convertible debt securities. (1) A
lender may extend credit for the purpose specified
in paragraph (c) of this section on collateral con
sisting of any 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 such a margin
security (such a convertible debt security is some
times 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
credit treated separately from the single credit
specified in paragraph (g) of this section and all
the collateral securing such credit shall be con
sidered 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
Regulation G).
(3) Any convertible security originally eligible
as collateral for credit extended under this para
graph shall be treated as such as long as con
tinuously 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 margin security other
than a convertible security is substituted for a con
vertible security held as collateral for credit ex
tended under this section, such margin security
and any credit extended on it in compliance with
this part shall thereupon be treated as subject to
paragraph (c) of this section and not to this para
graph and the credit extended under this para
graph shall be reduced by an amount equal to the
maximum loan value of the security withdrawn.
(e) Statements as to purpose of credit. (1) In
connection with any extension of credit secured
directly or indirectly, in whole or in part, by col
lateral that includes any margin security, every
person who is subject to the registration require
ment 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 per
son 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 executed
by the customer if accepted in good faith. To
accept the customer’s statement in good faith, such
person must (i) be alert to the circumstances sur
rounding the credit and (ii) if he has any further
information which would cause a prudent man not
to accept the statement without inquiry, have in
vestigated and be satisfied that the customer’s
statement is truthful.
(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 in
appropriate, to the stated purpose.
(f) Credit extended to person subject to Regula
tion T . (1) No lender shall extend or maintain any
credit for the purpose of purchasing or carrying
any margin security to any customer who is sub
ject to Part 220 of this Chapter (Regulation T)
without collateral or on collateral consisting of
margin securities (other than exempted securi
ties 4). Where the credit is to be used in the ordi
nary course of business of such customer, such
credit is presumed to be for the purpose of pur
chasing or carrying margin securities unless the
lender has in his records a statement to the con
trary obtained and executed in conformity with the
requirements of paragraph (e) of this section.
(2) 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 5 to aid in the distri
bution of securities to customers not through the
medium of a national securities exchange, or (ii)
4A s
5A s
12
d efin ed in 15 U .S .C . 7 8 c ( a ) ( 1 2 ) .
d efin ed in 15 U .S .C . 7 8 c (a ) (5 ).
§ 207.1
REGULATION G
subordinated to the claims of general creditors by
a subordination agreement approved by an appro
priate committee of a national securities exchange
or by a “satisfactory subordination agreement” as
defined in paragraph (c)(7) of Rule 15c3-l of the
Securities and Exchange Commission (17 CFR
240.15c3- 1(c)(7)).
(3) The Board of Governors of the Federal
Reserve System may by Order exempt from the
prohibitions of this paragraph (f) and the re
quirements of this part, either unconditionally or
upon specified terms and conditions or for stated
periods, any loan for the purpose of making a
loan or providing capital to a person who is sub
ject to Part 220 of this Chapter (Regulation T),
upon a finding that the granting of such an ex
emption is necessary or appropriate, in the public
interest or for the protection of investors; Pro
vided, That the Securities Investor Protection
Corporation shall have certified to the Board that
such action is appropriate under the circumstances.
(g) Combining purpose credit extended to the
same customer. For the purpose of this part, ex
cept for a credit subject to paragraph (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 February 1, 1968, shall be consid
ered a single credit and, except as provided in
paragraphs (d) and (i) of this section, all the col
lateral securing such a credit, whether directly or
indirectly, in whole or in part, shall be considered
in determining whether the credit complies with
this part.
(h) Purpose and nonpurpose credit extended to
the same person. No 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, 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 pro
hibitions 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 cus
tomer as his principal residence when such credit
13
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 inde
pendently 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.
(1) Purpose credit secured both by margin securi
In the case of any pur
pose 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 payable (or entitling the holder to a loan
thereon) in a dollar amount determined without
regard to the market value of the assets support
ing the claim shall have a maximum loan value as
determined by the lender in good faith.
(j) Withdrawals and substitutions of collateral.
(1) General rule. Except as permitted by the next
subparagraph and by § 207.4(a), while a lender
maintains any purpose credit extended after Feb
ruary 1, 1968, the lender shall not at any time per
mit any withdrawal or substitution of collateral un
less either (i) the credit would not exceed the
maximum loan value of the collateral after such
withdrawal or substitution, or (ii) the credit is
reduced by at least the amount by which the maxi
mum 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 require
ment of collateral consisting of margin securities
or debt securities convertible into margin securities
is prescribed from time to time in § 207.5 (the
Supplement to Regulation G).
(2) Same-day substitution of collateral. Except
as prohibited by § 207.4(a)(2), in the case of a
credit in which the equity ratio is equal to or ex
ceeds the minimum equity ratio as prescribed in
§ 207.5 (the supplement to the regulation) a lender
may permit a substitution of margin securities
effected by a purchase and sale on orders executed
within the same day: Provided, 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
ties and by other collateral.
REGULATION G
§ 207.2
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 an amount no
greater than the maximum loan value of the
securities purchased less the maximum loan value
of the securities 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 increase,
or the credit is extended pursuant to § 207.4(a).
SECTION 207.2—DEFINITIONS
For the purpose of this part, unless the context
otherwise requires:
(a) Terms herein have the meanings given them
in section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)).
(b) The term “in the ordinary course of his busi
ness” means occurring or reasonably expected to
occur from time to time in the course of any activ
ity 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 other
wise.
(2) Credit to enable the customer to reduce or
retire indebtedness 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 se
curities described in paragraph (d) of this section
and of goods, services, property interests, other se
curities, or investments, is “purpose credit.”
(d) Margin security. The term “margin secu
rity” means any equity security 6 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,
6
into a margin security, or (ii) carrying any war
rant or right to subscribe to or purchase, presently
or in the future, a margin security, (4) any such
warrant or right, (5) a security issued by an in
vestment 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 company are continuously invested in ex
empted securities.7
(e) Registered equity security. The term “regis
tered equity security” means any equity security
which (1) is registered on a national securities ex
change, (2) 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)(2) of the Securities Ex
change 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 na
tional securities exchange which the Board of
Governors of the Federal Reserve System has de
termined 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 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
provided 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) Exist or of which the issuer ceases to exist,
or
(ii) Meet substantially the provisions of subparagraph (1) of this paragraph (f) and of
§ 207.5(e) (the Supplement to Regulation G).
(4) The foregoing notwithstanding, the Board
may omit or remove any stock that is not traded
7A s
A s d efin ed in 15 U .S .C . 7 8 c ( a ) ( l l ) .
14
d efin ed in 15 U .S .C . 7 8 c ( a ) ( 1 2 ) .
§§ 2 0 7 .3 -2 0 7 .4
REGULATION G
on a national securites 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 ap
proval to, such security or any transaction therein.
Any statement in an advertisement or other sim
ilar communication containing a reference to the
Board in connection with such stocks or such list
shall constitute such an unlawful representation.
(g) Purchase and sale. (1) The term “purchase”
includes any contract to buy, purchase, or other
wise acquire.
(2) The term “sale” includes any contract to
sell or otherwise 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, ex
cept as provided in § 207.4(a)(3), any arrange
ment with the customer under which the cus
tomer’s right or ability to sell, pledge, or otherwise
dispose of margin securities owned by the cus
tomer is in any way restricted as 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 cus
tomer’s assets unless a substantial part of such
assets consists of margin securities, or (2) if the
lender in good faith has not relied upon such
securities as collateral in the extension or main
tenance of the particular credit: A nd 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 similar
circumstances, if the lender in good faith has not
relied upon such securities as collateral in the ex
tension or maintenance of the particular credit.
(j) The term “stock” includes any security com
monly known as a stock; any voting trust cer
15
tificate or other instrument representing 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.
(k) The term “equity ratio” means the frac
tion stated as a percentage in which the
denominator is the current market value of the
collateral having loan value in respect to the
credit and the numerator is such current market
value minus the amount of the credit currently
owing.
SECTION 207.3—REPORTS AND RECORDS
(a) Every person who is registered pursuant to
§ 207.1(a) of this part shall, within 30 days fol
lowing June 30, 1977 and within 30 days follow
ing each succeeding June 30 thereafter, 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 en
able it to perform the functions conferred upon
it by the Securities Exchange Act of 1934 (15
U.S.C. 78).
SECTION 207.4—MISCELLANEOUS
PROVISIONS
(a) Stock option and employee stock purchase
plans. In respect to any credit extended and main
tained by a corporation, by a lender wholly con
trolled and (except in the case of a lender formed
prior to February 1, 1968, or a trustee) wholly
owned by such corporation, or by a lender which
is a membership thrift organization whose mem
bership is limited to employees and former em
ployees of such corporation, 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, subsid
iary, or affiliate 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 stockholders to purchase
margin securities of such corporation, subsidiary,
or affiliate;
REGULATION G
§ 207.4
(1) Sections 207.1(c), (d), (f), (g), (h), (i), and § 207.5 (the Supplement to Regulation G), and
(j) of this part shall not apply (i) to any such (b ) the agreement under which the credit is ex
credit extended to finance the exercise of such tended provides that, except as permitted by the
rights granted to any named officer or employee proviso in subdivision (iii) of this subparagraph,
prior to February 1, 1968 and effectively exercised the officer or employee shall, in respect to such
by such officer or employee prior to February 1, deficiency, for at least 3 years from the extension
1969 (with respect to credit extended to purchase of the credit, make equal repayments to the planOTC margin stock or debt securities convertible lender at least quarterly and equivalent to at least
into such stock, such dates shall be July 8, 1969, 20 per cent of such deficiency per annum, or such
and July 8, 1970, respectively), (ii) to any credit lesser amount as the Board of Governors of the
extended prior to February 1, 1969, to a plan- Federal Reserve System, upon application may
lender pursuant to a bona fide written commit permit;
ment in existence on February 1, 1968, to finance
(iii) The officer or employee is not permitted
the exercise of such rights and by such plan- under such plan or credit agreement to sell, with
lender from the proceeds of such credit to any draw, pledge, or otherwise dispose of all or any
officer or employee to finance the exercise of part of such collateral until (a) all repayments
rights granted pursuant to a stock purchase plan have been made for at least the 3-year period
under which the exercise price does not exceed provided in subdivision (ii) of this subparagraph
50 per cent of the market value of the stock and the deficiency has been repaid, or (b ) as a
subject to purchase, valued as of the offering date result of the repayments described in subdivision
thereof, or (iii) to any credit extended by a plan- (ii) of this subparagraph and/or of a change in
lender pursuant to a stock purchase plan or stock the current market value of the collateral, the
option which is qualified or restricted under In maximum loan value of the collateral, as pre
ternal Revenue Code §§ 422, 423, or 424, to scribed by § 207.5 (the Supplement to Regulation
finance the exercise of such rights granted prior G), is at least equal to the credit which remains
to February 1, 1968.
owing from the officer or employee to the plan(2) The restrictions imposed by § 207.1(c) and lender, whichever shall occur first: Provided, That
(d) and § 207.5 (the Supplement to Regulation G) this restriction need not apply where such colla
on the maximum loan value of margin securities teral is required to be sold to meet emergency
serving as collateral for purpose credit shall not expenses arising from circumstances not reason
apply to securities purchased, and serving as direct ably foreseeable at the time of the extension of
or indirect collateral for credit extended, pursuant the credit (for this purpose such emergency ex
penses shall include the death, disability, or in
to such a plan: Provided, That
(i) Each such credit extended to any officer voluntary termination of employment of the officer
or employee pursuant to this subparagraph (2) in or employee or some other change in his circum
connection with the exercise of rights under one stances, involving extreme hardship, not reason
or more plans or with the periodic exercise of ably foreseeable at the time the credit is extended.
rights under a single plan, when such credits The opportunity to realize monetary gain is not
shall be outstanding at the same time, may be a “change in his circumstances” for this purpose);
treated separately from any other credit extended and
(iv) At such time as either of the conditions
pursuant to this subparagraph (2) and shall be
treated separately from any other credit extended with respect to sale, withdrawal, pledge, or other
pursuant to sections 207.1(c), (d), and (g) of this disposition of collateral specified in subdivision
part: Provided, That the collateral with respect (iii) of this subparagraph are satisfied the credit is
to each individual credit extended pursuant to thereafter treated as a credit subject to all the
such plan or plans shall be identified with, and requirements of this part.
shall have loan value only with respect to, such
(3) No extension of credit to a plan-lender to
individual credit.
finance such a plan shall be deemed to be in
(ii) At the time when credit is extended in con directly secured by a margin security purchased
nection with a plan subject to this subparagraph, pursuant to the plan: Provided, That such secur
ity is not repledged by the plan-lender to secure
(a) the plan-lender computes the “deficiency”—
the amount by which the credit exceeds the maxi such extension of credit to the plan-lender and
mum loan value of the collateral as prescribed by in no event does the person extending such credit
16
§ 207.4
REGULATION G
have recourse to such security: A nd provided fur
ther, That the amount of the credit does not
exceed the total amount of credit currently ex
tended by such plan-lender pursuant to such plan.
(b) Extensions 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 with
drawal or substitution of securities to enable a
customer to participate in a reorganization or re
capitalization.
(d) Mistakes in good faith. Failure to comply
with this part due to a mechanical mistake made
in good faith in determining, recording, or cal
culating 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 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. (1) An extension of purpose credit
provided for in a plan, program, or investment
contract that is registered with the Securities and
Exchange Commission under the Securities Act of
1933 (15 U.S.C. 77) and provides for the ac
quisition both of a security issued by an invest
ment company described in § 207.2(d)(5) and of
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
applicable interest), the maximum loan value of
such security shall be 40 per cent of its current
market value, as determined by any reasonable
method.
(2) Sections 207.1(c), (d), (f), (g), (h), (i), and
(j) of this part shall not apply to any credit
extended to a person registered pursuant to
§ 207.1(a) who extends credit pursuant to subparagraph (1) of this paragraph, Provided, That:
(i) the credit extended pursuant to this subparagraph is secured by securities that are is
sued by an investment company described in
§ 207.2(d)(5), and are carried for the account of
one or more customers under a plan, program, or
investment contract described in subparagraph
(1) of this paragraph (and the person extending
such credit receives written notice from the
recipient of the credit to this effect); and
(ii) the provisions of such plan, program, or
investment contract conform to the provisions of
Rule 15c2-1 of the Securities and Exchange Com
mission concerning hypothecation of customers’
securities (17 CFR 240.15c2-l).
(g) Transfers. A person who is registered pur
suant to the requirement of § 207.1(a) of this
part may, without following the requirements of
this part as to the extension of a credit, accept
the transfer of a credit originally extended in
conformity with the requirements of this part di
rectly from another such person: Provided, That
the statement of purpose, executed by the cus
tomer in connection with the original extension
of credit and accepted in good faith and signed
by the transferor in conformity with the require
ments of § 207.1(e) of this part, is obtained and
kept with each such transferee account: A nd pro
vided further, That any transfer pursuant to this
paragraph is made as a bona fide incident to a
transaction not undertaken for the purpose of
avoiding the requirements of this part, the amount
of the credit in connection with the transfer is
not increased, and the collateral for the trans
ferred credit is not changed; and, after such
transfer, a lender may permit such withdrawals
and substitutions of collateral as are permitted in
respect to a credit it extends subject to this part.
[S E C T I O N 207.5— S U P P L E M E N T , con ta in in g m ax im u m lo a n values, reten tion requirem ent, and requirem ents fo r
in clu sion o n list o f O T C m argin s to ck , is p rinted separately.]
17
F . R . F orm G-3
R ev. 6-69
SPECIMEN ONLY
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE OF AN EXTENSION OF CREDIT SECURED BY MARGIN
SECURITIES BY A PERSON SUBJECT TO REGISTRATION UNDER REGULATION G
(FEDERAL RESERVE FORM G-3)
A FALSE OR DISHONEST STATEMENT ON THIS FORM
M AY BE PUNISHABLE BY FINE OR IMPRISONMENT
(U.S. CODE, TITLE 15, SECTION 78ff AND TITLE 18, SECTION 1001)
Instructions:
(1) Please print or type (if space is inadequate attach separate sheet).
(2) The term “margin security” is defined in § 207.2(d) of Regulation G. See also § 207.2(e).
(3) Part I (3) and (4) need be filled in only if the purpose of the credit described in Part I (1) is other than to purchase
or carry margin securities.
(4) In Part II “source of valuation” need be filled in only if such source is other than regularly published information
in journal of general circulation.
(5) Part II need not be completed in the case of a credit of $5,000 or less which is not for the purpose of purchasing or
carrying margin securities. However, in such cases, Part I must be completed as if Part II were completed.
(to be completed by customer (s))
(1) The purpose of this credit in the amount of $
, secured in whole or in part by
the margin securities listed in Part II (A) and (B) is (describe in detail)
PART I
(2)
, has outstanding, or has
(Name of person extending credit)
agreed to extend, to the undersigned, the following credits in addition to the credit described on this form
(itemize and describe briefly, including amounts and collateral if any). If none, so state
(3) Is any of the collateral listed in Part II (A) or (B) to be delivered, or has any such collateral
been delivered, from a bank, broker, dealer, or person other than the undersigned? Yes □ No □
If yes, from whom?
Against payment? Yes □ No □
(4) Has any of the collateral listed in Part II (A) or (B) been owned less than six months?
Yes □ No □ If yes, identify all such collateral so owned. ..................................................................
The undersigned has (have) read this form and hereby certifies and affirms that to the best of my (our)
knowledge and belief the information contained therein is true, accurate, and complete.
SIGNED
(Manual signature)
SIGNED
(Date)
(Manual signature)
(P rin t or type name)
(P rint or type name)
19
(Date)
(to be completed by person extending credit)
(A)
Collateral consisting of margin securities, other than debt securities convertible into margin securi
ties. The loan value of such securities under the current Supplement to Regulation G is
per cent.
PART II
M arket price
per share
Itemize separately by issue
No. of shares
Source of
valuation
Total m arket
price per
issue
(B)
Collateral consisting of debt securities convertible into margin securities. The loan value of such
securities under the current Supplement to Regulation G is
per cent.
Par value
Itemize separately by issue
M arket price
Source of
valuation
Total m arket
price per
issue
Market
value
Source of
valuation
Good faith
loan value
(C) Other collateral.
Describe briefly (itemize where 10 per cent or more)
G,
The undersigned, a person subject to registration under Regulation
is aware that this credit secured
by margin securities may be subject to Regulation
has read this form, has accepted the customer’s
statement on Part I in good faith as defined below*, and hereby certifies and affirms that to the
best of his knowledge and belief all the information contained therein is true, accurate, and complete.
G,
Date
SIGNED
(Manual signature)
(P rin t or type name and title)
* Regulation G requires that the customer’s statement on this form be accepted by the person extending the credit in
good faith. Good faith requires that such person (1) must be alert to the circumstances surrounding the credit, and (2) if he
has any information which would cause a prudent man not to accept the statement without inquiry, has investigated and is
satisfied that the statement is truthful. Among the facts which would require such investigation are receipt of the statement
through the mail or from a third party.
THIS FORM MUST BE RETAINED BY THE PERSON EXTENDING THE CREDIT FOR AT
LEAST THREE YEARS AFTER THE TERMINATION OF THIS CREDIT
20
REGULATION T
(12 CFR 220)
As amended effective June 1, 1977
CREDIT BY BROKERS AND DEALERS *1
SECTION 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.
SECTION 220.2—DEFINITIONS
For the purpose of this part, unless the context
otherwise requires:
(a) The terms 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 secu
rities 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 ac
cordance 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 credi
tor were not a participant.
(d) The term “registered security” means any
security which (1) is registered on a national secu
rities exchange; or (2) in consequence of its hav
ing unlisted trading privileges on a national securi
ties exchange is deemed, under the provisions of
section 12(f) of the Act (15 U.S.C. 78/), 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 ex
tent necessary to render lawful any direct or in
direct 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 securi
ties exchange.
(e) (1) The term “ OTC margin stock” 1 means
stock not traded on a national securities exchange
which the Board of Governors of the Federal Re
* This text corresponds to the Code of Federal Regula
tions, Title 12, Chapter II, Part 220, cited as 12 CFR 220.
The words “this part,” as used herein, means Regulation T.
1 “ OTC stock” hereinafter refers to stock traded “ over
the counter.”
21
REGULATION T
§ 220.3
security other than an equity security2 or an
exempted security.
SECTION 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 relations which
§ 220.4 permits to be included in any special ac
count provided for by that section may be in
cluded in the appropriate special account, and all
transactions in commodities, and, except to the
extent provided in paragraph (b)(2) of this sec
tion, all transactions in non-equity securities, ex
empted securities, and in other securities having
no loan value in a general account under the
provisions of paragraph (c) of this section and
§ 220.8 (the Supplement to Regulation T) (ex
cept unissued securities, short sales and securities
positions to offset short sales other than those
permitted in § 220.4(j)(5), purchases to cover
short sales and contracts involving an endorse
ment or guarantee of any put, call, or other op
tion), shall be included in the appropriate special
account provided for by § 220.4. During any
period when such § 220.8 specifies that margin
equity securities shall have no loan value in a
general account or special convertible debt secu
rity account (sometimes referred to herein as
“special convertible security account”) subject to
§ 220.4(j), any transaction consisting of a pur
chase of a security other than a purchase of a
security to reduce or close out a short position
shall be effected in the special cash account pro
vided for by § 220.4(c) or in some other appro
priate special account provided by § 220.4.
(b) General rule. (1) (i) A creditor shall not
effect for or with any customer in a general ac
count, special bond account subject to § 220.4(i),
or special convertible debt 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 bal
ance of such account over the maximum loan
value of the securities in such account, or in
creases any such excess, unless in connection
therewith the creditor obtains, as promptly as pos
sible and in any event before the expiration of 5
full business days following the date of such
serve System has determined to have the degree of
national investor interest, the depth and breadth
of market, the availability of information respect
ing the stock and its issuer, and the character and
permanence of the issuer to warrant subjecting
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 subpara
graph (1) of this paragraph (e). Except as pro
vided in subparagraph (4) of this paragraph (e),
such stocks shall meet the requirements of § 220.8
(h) (the Supplement to Regulation T).
(3) The Board shall from time to time remove
from the list described in subparagraph (2) of
this parargraph (e) stocks that cease to:
(i) Exist or of which the issuer ceases to exist,
or
(ii) Meet substantially the provisions of subparagraph (1) of this paragraph (e) and of § 220.8
(i) (the Supplement to Regulation T).
(4) The foregoing notwithstanding, the Board
may 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 mar
gin 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 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 refer
ence 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 security” 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 para
graph (d)(3) of this section.
(h) The term “ non-equity security” means any
2As defined in 15 U.S.C. 78c(a)(11).
22
§ 220.3
REGULATION T
transaction, the deposit into such account of cash
or securities in such amount that the cash depos
ited plus the loan value of the securities deposited
equals or exceeds the excess so created or the in
crease so caused.
(ii) If the adjusted debit balance in a general
account or special convertible debt security ac
count, computed using the margin requirement
for short sales specified in § 220.8(g)(2) of the
Supplement to Regulation T, exceeds the maxi
mum loan value of the securities in such account
specified in § 220.8(g)(1), the account is subject
to § 220.8(g) (sometimes referred to herein as
“account subject to section 8(g)”). If an account
is subject to § 220.8(g) as of the close of busi
ness on the preceding business day, it shall be
subject in addition to all other requirements ap
plying to the account, to the requirement that
the creditor shall not effect any transaction in the
account which creates an excess of the adjusted
debit balance of such account, computed using
the margin requirements for short sales specified
in § 220.8(d), over the maximum loan value of
the securities in such account specified in § 220.8
(a) and (c), 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 ac
count of cash or securities in such amount that
the cash deposited plus the loan value of the secu
rities deposited equals or exceeds the excess so
created or the increase so caused. The required
deposit may be reduced by the amount of cash
or securities which otherwise could be withdrawn
pursuant to the provisions of subparagraph (2)
of this paragraph in connection with any other
transactions in the account on the same day.
(2) 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 ac
count, 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 connec
tion with a transaction on a previous day and
none would need to be deposited thereafter in
connection with any withdrawal of cash or se
curities on the current day. The permissible ex
23
ceptions 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 “reten
tion 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 de
posit in such account of cash or securities having
loan value in such account counted at the maxi
mum loan value at least equal to the “retention re
quirement” of those securities, or (iii) cash 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 margin securities or
securities having loan value in the general account,
special bond account, or special convertible secur
ity account there may be withdrawn in cash an
amount equal to the difference between the current
market value of the securities sold and the “reten
tion requirement” 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 held in the general account on March 11,
1968, and continuously thereafter there may be
withdrawn in cash an amount equal to the differ
ence between the current market value of the
securities sold and the “retention requirement” of
those securities as prescribed in § 220.8 (the
Supplement to Regulation T).
(3) Rules for computing the maximum loan
value of the securities in a general account, special
bond account, or special convertible security ac
count and the adjusted debit balance of such
account are provided in paragraphs (c) and (d) of
this section, and certain modifications of and ex
ceptions to the general rule stated in this paragraph
are provided in the subsequent paragraphs of this
section and in § 220.6.
(c) Maximum loan value and current market
value. (1) The maximum loan value of the securi
ties in a general account, special bond account, or
special convertible security account is the sum of
the maximum loan values of the individual securi
ties in such account, including securities (other
than unissued securities) bought for such account
REGULATION T
§ 220.3
but not yet debited thereto, but excluding securities
sold for such account whether or not payment has
been credited thereto.
(2) Except as otherwise provided in this para
graph, the maximum loan value of a security in a
general account, special bond account, or special
convertible security account shall be such maxi
mum loan value as the Board shall prescribe from
time to time in § 220.8 (the Supplement to Regula
tion T). No collateral other than an exempted
security or a registered non-equity security held in
such account on March 11, 1968, and contin
uously thereafter, or margin equity security shall
have any loan value in a general account except
that a margin 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 con
tinuously 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 con
vertible security account; but, if the account con
tains 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 cus
tomer 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 may use any reasonable estimate of the
market value of such security as of the close of
business on such preceding business day.
(d) Adjusted debit balance. For the purpose of
this part, the adjusted debit balance of a general
account, special bond account, or special con
vertible debt security account shall be calculated
by taking the sum of the following items:
(1) the net debit balance, if any, of such
account;
24
(2) the total cost of any securities (other than
unissued securities) bought for such account but
not yet debited thereto;
(3) 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 presecribe from time to time in § 220.8
(d) (the Supplement to Regulation T) as the
margin required for such short sales, except that
such amount so prescribed in such § 220.8(d)
need not be included when there are held in the
general account or special convertible debt secu
rity account the same securities or securities ex
changeable 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 margin as provided for in
paragraph (i) of this section and § 220.8 (the
Supplement to Regulation T) for each transaction
involving the issuance, endorsement, or guarantee
of any put, call, or combination thereof.
and deducting there from the sum of the following
items:
(6) the net credit balance, if any, of such ac
count; and
(7) the net proceeds of sale of any securities
(other than unissued securities) sold for such ac
count 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 forego
ing rule and the supplementary rules prescribed in
§ 220.6(a) and (b).
(e) Liquidation in lieu of deposit.3 In any case
in which the deposit required by paragraph (b) of
this section, or any portion thereof, is not obtained
3
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).
§ 220.3
REGULATION T
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 non-exempted securities in the general ac
count, 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 re
sulting 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: 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 bal
ance 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 sec
tion may, on application of the creditor, be ex
tended for one or more limited periods commensu
rate with the circumstances (1) by any regularly
constituted committee of a national securities ex
change having jurisdiction over the business con
duct 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 appro
priate, by a committee of a national securities as
sociation: Provided, That such committee is satis
fied that the creditor is acting in good faith in
making the application and that the circumstances
are in fact exceptional and warrant such action.
(g) Transactions on given day. (1) For the
purpose of paragraph (b)(1) of this section, ex
cept in the case of an account subject to section
8(g), the question of whether or not an excess
of the adjusted debit balance of a general account,
special bond account, or special convertible debt
security account over the maximum loan value
of the securities in such account is created or in
creased 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 transactions, or other liquida
tion that has been effected on such day, pursuant
to the requirements of paragraph (b) or (e) of
this section, in connection with a transaction on a
previous day.
(2) In the case of an account subject to section
8(g), the computation for the required deposit,
under paragraph (b)(l)(ii) of this section in
connection with transactions on a given day, may
be made at the close of trading on such day and
shall be made exclusive of any deposit of cash,
deposit of securities, covering transactions or other
liquidation that has been effected on such day,
pursuant to the requirements of paragraph (b)
or (e) of this section, in connection with a trans
action on a previous day.
(3) 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 paragraph
(b)(1) of this section.
(4) Any transaction which serves to meet the
requirements of paragraph (e) of this section or
otherwise serves to permit any offsetting trans
action in an account shall, to that extent, be un
available to permit any other transaction in such
account.
(5) For the purposes of this part (Regulation
T), if a security has maximum loan value under
paragraph (c)(1) of this section in a general
account, or under § 220.4(j) in a special con
vertible debt security 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 un
issued 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
securities when there are held in such account
securities in respect of which the unissued secur
ities are to be issued, nor for any net position in
unissued securities that are exempted securities.
25
REGULATION T
§ 220.3
(2) Whenever a creditor, pursuant to a purchase
of an unissued security for a customer, receives an
issued security which is not a margin or exempted
security, the creditor shall treat as the margin re
quired for such purchase, any payment by the cus
tomer for such issued security as a transaction
(other than a withdrawal) which increases the ad
justed debit balance of a general account, special
bond account, or special convertible security ac
count by the amount of the payment minus the
amount required to be included in the adjusted
debit balance of such account, at the time of and in
connection with the purchase of the unissued
security.
(i) Options. (1) The amount to be included in
the adjusted debit balance of an account as the
margin required for each transaction involving the
issuance, endorsement or guarantee of any put
or call shall be such amount as the Board shall pre
scribe from time to time in section 220.8 (the
Supplement to Regulation T) as the margin re
quired for the writing of options, increased by any
unrealized loss on each such commitment, or
reduced by any excess of the exercise price over
the current market value of the underlying secu
rity in the case of a call or any excess of the cur
rent market value of the underlying security over
the exercise price in the case of a put. Such
sum, however, shall not exceed the current mar
ket value of the underlying security in the case of
a call, or the exercise price in case of a put, nor
be less than $250 in the case of either a call or
a put. Such sum need not be included in the
adjusted debit balance when there is held in the
account any of the following:
(i) The underlying security in the case of a
call or a short position in the underlying security
in the case of a put;
(ii) Securities immediately convertible into or
exchangeable for the underlying security without
restriction or the payment of money in the case
of a call, provided that the right to convert or
exchange does not expire on or before the expira
tion date of the option;
(iii) An agreement under which a bank, which
is holding the underlying securities or the required
cash, is obligated to deliver, in the case of a call, or
accept, in the case of a put, the underlying secur
ities against payment of the exercise price upon
exercise of the option;
(iv) A long position in a call on the same num
ber of shares of the same underlying security
26
which does not expire before the expiration date
of the call issued, endorsed or guaranteed, pro
vided that there is also added to the adjusted
debit balance the amount, if any, by which the
exercise price of such long position exceeds the
exercise price of the call issued, endorsed or
guaranteed;
(v) A long position in a put on the same num
ber of shares of the same underlying security
which does not expire before the expiration date
of the put issued, endorsed or guaranteed, pro
vided that there is also added to the adjusted debit
balance the amount, if any, by which the exercise
price of the put issued, endorsed or guaranteed
exceeds the exercise price of such long position;
or
(vi) A warrant to purchase the underlying
security, in the case of a call, which does not expire
on or before the expiration date of the call, pro
vided that there is also added to the adjusted
debit balance the amount, if any, by which the
exercise price of the warrant exceeds the exercise
price of the call, issued, endorsed or guaranteed.
A warrant used in lieu of the required margin
under this provision shall have no loan value
in the account.
(2) When a security held in the account serves
in lieu of the margin required for a call, such
security shall be valued at no greater than the
exercise price of the call.
(3) When a short position held in the account
serves in lieu of the margin required for a put,
the amount prescribed by paragraph (d)(3) of this
section as the amount to be added to the adjusted
debit balance in respect of short sales shall be
increased by any unrealized loss on the position.
(4) When both a put and a call are issued, en
dorsed or guaranteed in a general account on the
same number of shares of the same underlying
security, the amount of margin required shall be
the margin on either the put or the call, whichever
is greater, plus any unrealized loss on the other
option.
(5) Any security position held in the account
which serves in lieu of the margin required for a
put or a call shall be unavailable to support any
other option transaction in the account.
(6) The customer may either designate at the
time the option order is entered which security
position held in the account is to serve in lieu of
REGULATION T
§ 220.4
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, 1969, and no such credit shall be main
tained after July 8, 1970.
(c) Special cash account. (1) In a special cash
account, a creditor may effect for or with any cus
tomer bona fide cash transactions in securities in
which the creditor may:
(1) 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 pur
chase or sale is in reliance upon an agreement ac
cepted by the creditor in good faith that the cus
tomer will promptly make full cash payment for
the security and that the customer does not con
template selling the security prior to making such
payment.
(ii) Sell any security for, or purchase any se
curity 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 agree
ment accepted by the creditor in good faith that
the security is to be promptly deposited in the
account.
(2) In case a customer purchases a security
(other than an exempted security) in the special
cash account and does not make full cash pay
ment for the security within 7 days after the date
on which the security is is so purchased, the credi
tor shall, except as provided in subparagraphs (3)(7) of this paragraph, promptly cancel or other
wise liquidate the transaction or the unsettled
portion thereof.
(3) If the security when so purchased is an un
issued security, the period applicable to the trans
action 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 pur
chasers. If the security when so purchased is a
“when distributed” security which is to be dis
tributed 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 dis
tributed. If the security when so purchased is a
new security issued or to be issued for the purpose
of refunding outstanding securities which mature,
the margin required or have a standing agreement
with the creditor as to the method to be used for
making the determination on any given day as to
which security position will be used in lieu of the
margin to support an option transaction.
SECTION 220.4—SPECIAL ACCOUNTS
(a) General rule. (1) Pursuant to this section, a
creditor 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 ac
count by the appropriate paragraph of this section
and to transactions and relations incidental to those
specifically authorized. 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 creditor no general account, special bond ac
count subject to § 220.4(i), or special convertible
security account subject to § 220.4(j).
(4) The only other conditions to which transac
tions in such special accounts shall be subject
under the provisions of this part shall be such
conditions as are specified in the appropriate para
graph of this section and in §§ 220.2, 220.6,
220.7, or 220.8, except insofar as § 220.3 applies
to §§ 220.4(i), and (j).
(b) Special omnibus account. In a special omni
bus account, a member of a national securities ex
change 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 cus
tomers’ securities by brokers or dealers (Rule 8c-1
(17 CFR 240.8c-l) or Rule 15c2-l (17 CFR
240.15c2-l)), to the effect that all securities car
ried in the account will be carried for the account
of the customers of the broker or dealer and (2)
27
REGULATION T
§ 220.4
or are to be payable upon presentation for redemp
tion, 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 trans
action 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 pay
ment for, securities owned by him at the time of
the purchase.
(4) If any shipment of securities is incidental
to the consummation of the transaction, the period
applicable to the transaction under subparagraph
(2) of this paragraph shall be deemed to be ex
tended 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 ac
cordance with subparagraph (1) of this paragraph,
purchases a security for a customer, or sells a se
curity to a customer, with the understanding that
he is to deliver the security promptly to the cus
tomer, 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 appli
cable under subparagraph (2) of this paragraph is
not the 7 days therein specified but 35 days after
the date of such purchase or sale.
(6) If an appropriate committee of a national
securities exchange or a national securities associa
tion 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 ex
ceptional 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 circum
stances, 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 para
graph refer to 7 full business days. The 35-day
period and the 90-day period specified in this para
graph refer to calendar days, but if the last day of
28
any such period is a Saturday, Sunday, or holiday,
such period shall be considered to end on the next
full business day. For the purposes of this para
graph, 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 purchased 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, and then, for any reason what
ever, 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 during the preceding 90 days: Provided,
that an appropriate committee of a national secu
rities 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 there
in 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 can
cellation of a transaction, otherwise than to cor
rect an error, shall be deemed to constitute a sale.
The creditor may disregard for the purposes 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 payment 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 ac
count 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 ac
count 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.
(d) Special arbitrage account. In a special arbi
trage 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 “arbi
trage” means (1) a purchase or sale of a security
in one market together with an offsetting sale or
REGULATION T
§ 220.4
purchase of the same security in a different market appropriate committee of the exchange is satisfied
at as nearly the same time as practicable, for the that the credit is not in contravention of any rule
purpose of taking advantage of a difference in of the exchange, the credit has the approval of
prices in the two markets, or (2) a purchase of a such committee, or
(b ) The lender as well as the borrower is a
security which is, without restriction other than
the payment of money, exchangeable or convert member of such exchange, the credit has the ap
ible within 90 calendar days following the date of proval of an appropriate committee of the ex
its purchase into a second security together with change, and the committee, in addition to being
an offsetting sale at or about the same time of satisfied that the credit is not in contravention of
such second security for the purpose of taking any rule of the exchange, is satisfied that the credit
advantage of a disparity in the prices of the two is outside the ordinary course of the lender’s busi
securities, except that when the security purchased ness, and that, if the borrower's firm or corporation
is solely a due bill for, or other evidence of the or an affiliated corporation of such firm or corpora
right to receive, only the security that is sold, and tion does any dealing in securities for its own
the security that is sold is trading as a when-issued account, the credit is not for the purpose of in
security, such period shall be 180 calendar days. creasing the amount of such dealing.
(e) Special commodity account. In a special
(iii) For the purpose of subdivisions (i) and
commodity account, a creditor may effect and carry (ii) of this subparagraph, the term “affiliated cor
for any customer transactions in commodities.
poration” means a corporation all the common
(f) Special miscellaneous account. In a special stock of which is owned directly or indirectly by
miscellaneous account, a creditor may:
the member firm or general partners and employees
(1) With the approval of any regularly consti of the firm, or by the member corporation or
tuted committee of a national securities exchange holders of voting stock and employees of the cor
having jurisdiction over the business conduct of its poration and an appropriate committee of the ex
members, extend and maintain credit to meet the change has approved the member firm’s or member
emergency needs of any creditor;
corporation’s affiliation with such affiliated cor
(2) (i) Extend and maintain credit, (a) to or poration.
(3) Purchase any security from any customer
for any partner of a firm which is a member of a
national securities exchange to enable such partner who is a member of a national securities exchange
to make a contribution of capital to such firm, or or a broker or dealer registered with the Securities
to purchase stock in an affiliated corporation of and Exchange Commission under section 15 of the
such firm, or (b ) to or for any person who is or Securities Exchange Act of 1934 (15 U.S.C. 78o),
will become the holder of stock of a corporation or sell any security to such customer: Provided,
which is a member of a national securities ex That the creditor acting in good faith purchases or
change to enable such person to purchase stock in sells the security for delivery, against full payment
such corporation, or to purchase stock in an affili of the purchase price, as promptly as practicable in
ated corporation of such corporation; provided the accordance with the ordinary usage of the trade;
(4) Effect and finance, for any member of a
lender as well as the borrower is a partner in such
member firm or a stockholder in such member national securities exchange who is registered and
corporation, or the lender is a firm or a stock acts as odd-lot dealer in securities on the exchange,
holder in such member corporation, or the lender such member’s transactions as an odd-lot dealer in
is a firm or corporation which is a member of a such securities, or effect and finance, for any joint
national securities exchange and the borrower is a venture in which the creditor participates, any
partner in such firm or a stockholder in such transactions in any securities of an issue with re
corporation;
spect to which all participants, or all participants
(ii) Extend and maintain subordinated credit to other than the creditor, are registered and act on a
another creditor for capital purposes: Provided, national securities exchange as odd-lot dealers;
That
(5) Effect transactions for and finance any joint
(a) Either the lender or the borrower is a firm venture or group in which the creditor participates
or corporation which is a member of a national and in which all participants are dealers (whether
securities exchange, the other party to the credit is such participants be acting jointly or severally), or
an affiliated corporation of such member firm or any member thereof or participant therein, for the
corporation, and, in addition to the fact that an purpose of facilitating the underwriting or distri
29
REGULATION T
§ 220.4
buting of all or part of an issue of securities (i) not
through the medium of a national securities ex
change, or (ii) the distribution of which has been
approved by the appropriate committee of a na
tional securities exchange;
(6) Effect for any customer the collection or
exchange (other than by sale or purchase) of secu
rities deposited by the customer specifically for
such purposes, and (subject to any other applicable
provisions of law) received from or for any cus
tomer, and pay out or deliver to or for any cus
tomer, any money or securities;
(7) Effect and carry for any customer transac
tions in foreign exchange; and
(8) Extend and maintain credit to or for any
customer without collateral or on any collateral
whatever for any purpose 4 other than purchasing
or carrying or trading in securities.
(g) Specialist’s account. (1) In a special ac
count designated as a specialist’s account, a credi
tor 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 joint
venture in which the creditor participates, any
transactions in any securities of an issue with
respect to which all participants, or all participants
other than the creditor, are registered and act on
a national securities exchange as specialists.
(2) Such specialist’s account shall be subject to
the same conditions to which it would be subject
if it were a general account except that if the
specialist’s exchange is a national securities ex
change which requires and submits to the Board
of Governors of the Federal Reserve System
reports suitable for supplying current information
regarding specialist’s use of credit pursuant to this
paragraph (g), the requirements of § 220.6(b)
regarding joint ventures shall not apply to such
accounts and the maximum loan value of a regis
tered security in such account (except a security
that has been identified as a security held for
investment pursuant to a rule of the Commis
sioner of Internal Revenue (Regs, section 1-12361(d))) shall be as determined by the creditor in
good faith.
(h) Special subscriptions account. In a special
subscriptions account a creditor may effect and
finance the acquisition of a margin security for a
4See § 220.7(c).
30
customer through the exercise of a right to acquire
such security which is evidenced by a warrant or
certificate issued to stockholders 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 sepa
rately 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 cur
rent 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 col
lateral as prescribed by § 220.8 (the Supplement
to Regulation T) and the customer 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 3calendar-month periods or until the credit does not
exgeed the current maximum loan value of the col
lateral, whichever shall occur first, and, if the cred
itor 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 liqui
date 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 maximum 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 maxi
mum loan value of the remaining collateral deter
mined as of the date the credit was extended; and
(3) The creditor shall not permit any with
drawal of cash or securities from the account so
long as the remaining credit exceeds the maximum
loan value of the remaining collateral in the ac
count , except that when the remaining credit ex
tended in connection with a given acquisition of
§ 220.4
REGULATION T
securities in the account has become equal to or maximum loan value) equal to at least the maxi
less than the maximum loan value of such securi mum loan value of the security so transferred
ties as prescribed in § 220.8 (the Supplement to without regard to the retention requirement of
Regulation T) (or in connection with an acquisi § 220.3(b)(2).
tion after October 20, 1967, the requirements of
(5) In a special convertible debt security ac
subparagraph (2) of this section have been ful count the amount of margin equity securities into
filled), such securities shall be transferred to the which a margin debt security held in the account
general account (or, if eligible, to a special con is convertible may be sold short without regard
vertible security account pursuant to § 220.4(j)) to the margin required for short sales in § 220.8
together with any remaining portion of such credit. (d) (Supplement to Regulation T), and such
In order to facilitate the exercise of a right in ac short position may be carried in the special con
cordance with the provisions of this paragraph, a vertible debt security account in conformity with
creditor may permit the right to be transferred the exception provided in § 220.3(d)(3).
from a general account to the special subscriptions
Without regard to the margin required for
account without regard to any other requirement the(6)writing
of options in section 220.8(j) (Supple
of this part.
ment to Regulation T), call options may be issued,
(1) Special bond account. In a special bond ac endorsed or guaranteed in this account on the
count a creditor may effect and finance transac number of shares of an underlying security into
tions in exempted securities and registered non which a margin debt security held in the account
equity securities for any customer.5 Call options is convertible, and put options may be issued,
may be issued, endorsed or guaranteed in this endorsed or guaranteed in this account on the
account on shares of any underlying equity secu number of shares of an underlying security sold
rity which is held in this account because it is short in the account. Such option positions may be
an exempted security.
carried in the account in conformity with the
(j) Special convertible debt security account. requirements of section 220.3(d) and (i).
(1) In a special convertible debt security account
(k) Special insurance premium funding ac
a creditor may extend credit on any margin secur count. In a special insurance premium funding ac
ity consisting of a margin debt security (i) conver count a creditor may arrange for the extension or
tible with or without consideration, presently or in maintenance of credit, not in excess of the pre
the future, into margin stock or (ii) carrying a miums on the insurance policy (plus any applica
warrant or right to subscribe to or purchase such ble interest), on a security issued by an investment
stock.
company registered pursuant to section 8 of the
(2) A special convertible debt security account Investment Company Act of 1940 (15 U.S.C.
shall be subject to the same conditions to which it 80a-8) that serves as collateral under a plan,
would be subject if it were a general account ex program, or investment contract, registered with
cept that the maximum loan value of the securities the Securities and Exchange Commission under
in the account shall be as prescribed from time to the Securities Act of 1933 (15 U.S.C. 77), that
time in § 220.8 (the Supplement to Regulation T). provides for the acquisition both of a security
(3) Any security which ceases to be an equity issued by such investment company and of insur
security while held in this account shall continue to ance: Provided, That such credit is extended or
be treated as an equity security as long as it is maintained by a lender subject to Part 207 of
this Chapter (Regulation G) or a bank subject to
continuously held in this account.
(4) In the event any convertible debt security Part 221 of this Chapter (Regulation U). A cred
held in this account is to be converted to a stock, itor arranging credit in a special insurance pre
such security shall upon conversion be transferred mium funding account shall not extend, arrange,
to the customer’s general account against a deposit or maintain credit in the general account or any
of cash or margin securities eligible for an exten other special account in § 220.3 and this section,
sion of credit in this account (counted at their except for transactions involving the purchase of
shares, in the special cash account described in
paragraph
(c) of this section, in investment com
5 For maximum loan value of such securities see § 220.8
panies
which
are so registered.
(b), the Supplement to Regulation T.
31
§§ 2 2 0 .5 -2 2 0 .6
REGULATION T
vertible 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 therein, shall
disregard the partner’s financial relations with the
firm as reflected in his capital and ordinary draw
ing 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 in
clude, in addition to the items specified in
§ 220.3(d), any amount by which the creditor’s
contribution to the joint venture exceeds the con
tribution which he would have made if he had con
tributed 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 ac
count, or special convertible security account from
one creditor to another, such account may be
treated for the 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, special bond account, or special con
vertible 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 ac
count a signed statement of the transferor describ
ing 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
SECTION 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 secu
rity) except:
(1) from or through a member bank of the
Federal Reserve System; or
(2) from any nonmember bank which shall have
filed with the 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 terri
tory 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 substantially 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. Blank forms of such agree
ments, information regarding their filing or termi
nation, and information regarding the names of
nonmember banks for which such agreements are
in force, may be obtained from any Federal Re
serve Bank.
(c) Borrowing from other creditors. A creditor
may borrow from another creditor in the ordinary
course of business as a broker 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.
SECTION 220.6—CERTAIN TECHNICAL
DETAILS
(a) Accounts of partners. In case a general
account, special bond account, or special con
32
REGULATION T
§ 2 2 0 .6
bond account, or special convertible security ac
count, for the purpose of participating in a reor
ganization or recapitalization in which the security
is involved: Provided, That if a non-margin nonexempted 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 ac
count except to the extent that such security or
proceeds could be withdrawn if the security were
a margin security.
(f) 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 presen
tation, or any order on a savings bank with pass
book 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 pay
ment 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, however, That if the
creditor receives notice that such check, draft,
order , or sight draft described in subparagraphs
(1), (2), or (3) of this paragraph 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 time, 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) Interest, service charges, etc. (1) Interest
on credit maintained in a general account, special
bond account, or special convertible security ac
count, communication charges with respect to
transactions 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 than commissions)
which the creditor may impose, may be debited to
such account in accordance with the usual prac
tice and without regard to the other provisions of
this part, but such items so debited shall be taken
into consideration in calculating the net credit or
net debit balance of such account.
(2) A creditor may permit interest, dividends,
or other distributions received by the creditor with
respect to securities in a general account, special
bond account, or special convertible security ac
count, 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 with
drawal, 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 en
tered in such account, (ii) such entry in the ac
count has not served in the meantime to permit in
the account any transaction which could not other
wise have been effected in accordance with this
part, and (iii) any cash withdrawn does not repre
sent any arrearage on the security with respect to
which it was distributed, 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 dis
tributed. Failure by a creditor to obtain in a gen
eral account, special bond account, or special con
vertible security account, any cash or securities
that are distributed with respect to any security in
such account shall, except to the extent that with
drawal 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 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 dis
tribution.
(h) Borrowing and lending securities. Without
regard to the other provisions of this part, a credi
tor (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 ex
tension 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
33
§ 220.7
REGULATION T
disregarded for the purposes of this part, if it is
incidental to the clearance of transactions in securi
ties directly between members of a national securi
ties 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, market price or loan value, or other simi
lar 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.
quirements of the Securities Act of 1933 by virtue
of section 4(2) of that Act (15 U.S.C. 77d(2))
Provided, that:
(i) the credit to be extended or maintained
will not violate the provisions of Parts 207 and
221 of this Chapter; and
(ii) the credit will not be used to purchase
or carry a security that is publicly-held. For the
purpose of this paragraph, a security shall be
deemed to be “publicly-held” if it is (a) a secu
rity of a class that is registered, or will be required
to be registered (assuming existing circumstances
requiring registration continue to prevail) within
120 days after the last day of the fiscal year of
the issuer, under Section 12 of the Act or would
be required to be registered except for the ex
emptions provided by paragraphs (2)(B) and (G)
of subsection 12(g), or (b) a security of a class
any portion of which was registered under Section
5 of the Securities Act of 1933 (15 U.S.C. 77e)
and in connection with which the issuer is re
quired to file periodic reports under Section 15(d)
of the Act.
(/) Credit related to portion of a security.
(b) Maintenance of credit. Except as otherwise
Credit for the purpose of purchasing or carrying
any part of an investment contract security (for specifically forbidden by this part, any credit ini
example, but not limited to, the cattle ownership tially extended without violation of this part may
portion of a program to own and feed cattle, or be maintained regardless of (1) reductions in the
the condominium ownership part of a program to customer’s equity resulting from changes in mar
own and rent a unit through a rental pool or ket prices, (2) the fact that any security in an
otherwise) shall be deemed to be credit on the account ceases to be margin or exempted, and
(3) any change in the maximum loan values or
entire security.
margin requirements prescribed by the Board
SECTION 220.7—MISCELLANEOUS
under this part. In maintaining any such credit,
PROVISIONS
the creditor may accept or retain for his own
(a) Arranging for loans by others. A creditor protection additional collateral of any description,
may arrange for the extension or maintenance of including non-margin securities.
(c) Statement of purpose of loan. Every exten
credit to or for any customer of such creditor by
any person upon the same terms and conditions as sion of credit on a margin security (other than an
those upon which the creditor, under the provisions exempted security) shall be deemed to be for the
of this part, may himself extend or maintain such purpose of purchasing or carrying or trading in
credit to such customer, but only upon such terms securities, unless the creditor has accepted in good
and conditions, except that this limitation shall not faith a written statement to the contrary in con
apply to the arranging by a creditor:
formity with the requirements of Form F.R. T-4
(1) for a bank subject to Part 221 of this executed by the customer and executed and ac
Chapter (Regulation U) to extend or maintain cepted in good faith by the creditor prior to such
credit on margin securities or exempted securities, extension. The creditor shall retain such statement
or
in his records for at least 3 years after such credit
(2) for any person to extend or maintain is extinguished. To accept the customer’s statement
credit for the purpose of purchasing or carrying in good faith, the creditor must (1) be alert to the
a security (including sale of a security with instal circumstances surrounding the extension of credit
ment payments or other credit features) in a trans and (2) if he has any information which would
action which is exempt from the registration re cause a prudent man not to accept the statement
34
§ 220.7
REGULATION T
without inquiry, have investigated and be satisfied
that the customer’s statement is truthful. A credi
tor may rely upon such a written statement if
accepted in accordance with this paragraph.
(d) 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) Additional requirements by exchanges and
creditors. Nothing in this part shall (1) prevent
any exchange or national securities association
from adopting and enforcing any rule or regula
tion further restricting the time or manner in
which its members must obtain initial or addi
tional margin in customer’s accounts because of
transactions effected in such accounts, or requiring
such members to secure or maintain higher mar
gins, 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 maintenance
of any credit, to refuse to extend credit, or to sell
any securities or property held as collateral for
any loan or credit extended by him.
(f) Credit by insurance companies that issue
variable annuity contracts. (1) Except as provided
in subparagraph (2) of this paragraph, Part 207 of
this chapter (Regulation G) rather than this Part
shall apply to any credit extended, maintained, or
arranged for by a life insurance company which
(i) meets the definition of “insurance company”
set forth in section 2(a)(17) of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(a)(17))
and (ii) is engaged in issuing or participating in
the issuance of any variable annuity contract, or
of any interest in a separate account established
by such insurance company, registered under the
Securities Act of 1933 (15 U.S.C. 77) or exempt
from such registration by Rule 156 of the Securi
ties and Exchange Commission (17 CFR 230.156).
(2) The provisions of this Part shall apply to
any credit extended to or maintained or arranged
for a customer by a life insurance company de
scribed in subparagraph (1) of this paragraph that
has registered, or is required to register, as a
broker or dealer pursuant to section 15 of the
Securities Exchange Act of 1934 (15 U.S.C.
78o) in connection with its activities as such a
broker or dealer, including:
(i) the offer or sale of any security or securities
registered under the Securities Act of 1933 (15
U.S.C. 77) or exempt from such registration by
Rule 156 of the Securities and Exchange Com
mission (17 CFR 230.156) issued by (a ) such
insurance company, or (b ) an investment com
pany registered pursuant to section 8 of the
Investment Company Act of 1940 (15 U.S.C.
80a-8) for which the insurance company is an
underwriter, investment advisor or dealer; and
(ii) those activities which are not part of the
conventional lending activities of such life insur
ance companies and which, in accordance with
the ordinary usage of the trade, would be con
sidered part of the business of a broker or dealer.
[SECTION 220.8—SUPPLEMENT, containing maximum loan values, margin for short sales, retention requirement,
and requirements for inclusion on list of OTC margin stock, is printed separately.]
35
SPECIMEN ONLY
F. R. Form T-4
6-69
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE OF AN EXTENSION OF CREDIT BY A CREDITOR
(FEDERAL RESERVE FORM T-4)
A FALSE OR DISHONEST STATEMENT BY THE CUSTOMER OR THE CREDITOR ON THIS FORM
MAY BE PUNISHABLE BY FINE OR IMPRISONMENT (U.S. CODE, TITLE 15, SECTION 78ff AND
TITLE 18, SECTION 1001)
Instructions:
(1) Please print or type (if space is inadequate attach separate sheet).
(2) In Part II “source of valuation” need be filled in only if such source is other than regularly published information
in journal of general circulation.
(3) This form need be obtained only if the purpose of the credit is other than to purchase, carry, or trade in securities
(see § 220.7(c) of Regulation T).
PART I (to be completed by customer (s))
(1) The purpose of this credit in the amount of $
, which is unsecured or secured in
whole or in part by the collateral listed in Part II, i s not to purchase or carry or trade in securities. It is
for the purpose of (describe in detail) ...........................................................................................................
(2) This creditor, ............................................................................................. , has outstanding, or has
(Name of creditor)
agreed to extend, to the undersigned, the following other credits, which are not for the purpose of purchasing
or carrying or trading in securities, in addition to the credit described on this form (itemize and describe
briefly, including amounts and collateral if any). If none, so state
(3) any of the collateral listed in Part II (A) or (B) to be delivered, or has any such collateral
been delivered, from a bank, broker, dealer, or person other than the undersigned? Yes □ No O
If yes, from whom ?
Against payment ? Yes □ No □
(4) Has any of the collateral listed in Part II (A) or (B) been owned less than six months?
Yes □ No □ If yes, identify all such collateral so owned ........................................................................
Is
The undersigned has (have) read this form and hereby certifies and affirms that to the best of my (our)
knowledge and belief the information contained on this form is true, accurate, and complete.
SIGNED
SIGNED
(Date)
(M anual signature)
(P rin t or type name)
37
(Manual signature)
(P rin t or type name)
(Date)
PART II (to be completed by creditor)
(A) Collateral consisting of margin stock or margin securities consisting of debt securities con
vertible into margin stock. The loan value of such stock under the current Supplement to Regulation T
is
per cent; the loan value of such debt securities is
per cent.
No. of shares
or
other unit
M arket price
per share
Itemize separately by issue
Source of
valuation
Total m arket
price per
issue
(B) Collateral consisting of other securities, e.g., mutual fund shares, registered non-equity securities.
P ar value
or other
denomination
Itemize separately by issue
M arket price
Source of
valuation
Total m arket
price per
issue
Current
m arket
value
Source of
valuation
Good faith
loan value
(C) Other collateral.
Itemize
The undersigned, a duly authorized representative of the creditor has read this form, has accepted the
customer’s statement on Part I in good faith as defined below*, and hereby certifies and affirms that to the
best of his knowledge and belief all the information contained on this form is true, accurate, and complete.
Date
SIGNED
(Manual signature)
(P rin t or type name and title)
* Regulation T requires that the customer’s statement on this form be accepted by the creditor acting in good faith.
Good faith requires that the creditor or his duly authorized representative (1) must be alert to the circumstances surrounding
the credit, and (2) if he has any information which would cause a prudent man not to accept the statement without inquiry,
has investigated and is satisfied that the statement is truthful. Among the facts which would require such investigation are
receipt of the statement through the mail or from a third party.
THIS FORM MUST BE RETAINED BY THE CREDITOR FOR AT LEAST THREE YEARS AFTER THE
TERMINATION OF THIS CREDIT
38
REGULATION U
(12 CFR 221)
As amended effective January 1, 1977
CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING
OR CARRYING MARGIN STOCKS *
SECTION 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 any
credit secured directly or indirectly 1 by any stock*12
for the purpose of purchasing or carrying any
margin stock 3 in an amount exceeding the maxi
mum loan value of the collateral, as prescribed
from time to time for stocks in § 221.4 (the Sup
plement 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 secured
by stock, as described in § 221.3(s), and any col
lateral consisting of convertible debt securities
described in § 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 8, 1969, for
the purpose of purchasing or carrying any OTC
margin stock4 or any debt security convertible
into such stock (and no other margin stock) is not
purpose credit, except that with respect to any
OTC margin stock such date shall be August 7,
1969, if extended to a member of a national
securities exchange or a broker or dealer regis
tered under section 15 of the Securities Exchange
Act of 1934 (15 U.S.C. 78o).
(b) Substitutions and withdrawals. Except as
permitted in paragraph (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 de
posited is less than the “retention requirement”
of any collateral withdrawn. The “retention re
quirement” of collateral other than stock is the
* This text corresponds to the Code of Federal Regula
tions, Title 12, Chapter II, part 221, cited as 12 CFR 221.
The words “this part,” as used herein, mean Regulation U.
1As defined in § 221.3(c).
2As defined in §221.3(1).
3Sometimes referred to as a “purpose credit”. See
§ 221.3(b). The term “margin stock” is defined in §221.3
(v).
4 As defined in § 221.3(d), “OTC stock” hereinafter
refers to stock traded “over the counter.”
39
REGULATION U
§ 2 2 1 .2
same as its maximum loan value and the “reten
tion requirement” of collateral consisting of stock
is prescribed from time to time in §221.4 (the
Supplement to Regulation U).
(c) Same-day transactions. (1) Except as pro
vided in § 221.3(r)(l), a bank may in the case
of a credit in which the equity ratio is equal to
or exceeds the minimum equity ratio as prescribed
in § 221.4 (the supplement to the regulation)
permit a substitution of stock whether margin or
nonmargin, effected by a purchase and sale on
orders executed within the same day: Provided,
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 re
quirement” with respect to the sale less the “re
tention requirement” with respect to the purchase,
or (ii) if the total cost of the purchase exceeds
the proceeds of the sale, the credit may be in
creased 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 col
lateral having maximum loan value at least equal
to the amount of the increase.
(2) For the purpose of this paragraph, the
term “equity ratio” means the fraction (stated as
a percentage) in which the denominator is the
current market value of the collateral having loan
value in respect of the credit and the numerator
is such current market value minus the amount
of the credit currently owing.
(d) Single credit rule. For the purpose of this
part, except for credit subject to § 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 deter
mining whether or not the credit complies with
this part.
SECTION 221.2—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 § 221.3(t),
40
if the credit comes within any of the following
descriptions.
(a) Any credit extended to a bank or to a
foreign banking institution;
(b) Any credit extended to a “plan-lender” as
defined in § 207.4(a) 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;
(c) Any credit extended to a dealer, or to two
or more dealers, to aid in the financing of the dis
tribution 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 exchange or a broker or dealer
registered under section 15 of the Securities Ex
change Act of 1934 (15 U.S.C. 78o) 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 hypothecation of cus
tomers’ securities (Rule 8c-l (17 CFR 240.8c-l)
or Rule 15c2-l (17 CFR 240.15c2-l)), are securi
ties carried for the account of one or more
customers;
(f) Any credit extended to finance the purchase
or sale of securities for prompt delivery which is
to be repaid in the ordinary course of business
upon completion of the transaction: Provided,
That the advance is not made to a person de
scribed in § 221.3 (q): A n d provided further, That
it is either (1) extended to a broker or dealer, or
(2) extended for a purpose other than to enable
the borrower to pay for stock purchased in an
account subject to Part 220 of this Chapter (Regu
lation T);
(g) Any credit extended against securities in
transit, or surrendered for transfer, which is pay
able 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): A n d 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);
§ 221.3
REGULATION U
(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 de
scribed in §221.3(q): A nd 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 (Regu
lation 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 exchange for the purpose of
financing his or his customers’ bona fide arbi
trage 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 pur
pose 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 pay
ment of money, exchangeable or convertible with
in 90 calendar days following the date of its pur
chase into a second security together with an
offsetting sale at or about the same time of such
second security, for the purpose of taking advan
tage of a disparity in the prices of the two securi
ties, except that when the security purchased is
solely a due bill for, or other evidence of the right
to receive, only the security that is sold, and the
security that is sold is trading as a when-issued
security, such period shall be 180 calendar days;
(k) Any credit extended to a member of a na
tional securities exchange for the purpose of
financing such members’ transactions as an oddlot dealer in securities with respect to which he
is registered on such national securities exchanges
as an odd-lot dealer;
(/) Any loan for the purpose of making a
loan or providing capital to a person who is sub
ject to Part 220 of this Chapter (Regulation T),
which loan has been exempted by the Board of
Governors of the Federal Reserve System, by
Order, from the requirements of this Part, either
unconditionally or upon specified terms and con
ditions or for stated periods, upon a finding that
the granting of such an exemption is necessary
or appropriate, in the public interest or for the
protection of investors; Provided, That the Securi
ties Investor Protection Corporation shall have
certified to the Board that such action is appro
priate under the circumstances, and
(m) Any credit extended to or maintained for
a customer for the purpose of making a loan or
contribution of capital to a broker or dealer sub
ject to Part 220 (Regulation T) if the loan or
contribution is in conformity with the require
ments regarding satisfactory subordination agree
ments or equities in the accounts of partners of a
rule of the Securities and Exchange Commission
(Rule 15c3- 1(c)(2)(A), (cX4), and (c)(7)) (17
CFR 240.15c3-l(c)(2)(A), (c)(4), and (c)(7)) or
the capital rules of an exchange of which the
broker or dealer is a member if the members
thereof are exempt therefrom by Rule 15c3-l(b)
(2) of the Commission (17 CFR 240.15c3-1(b)(2))
or to purchase stock in a broker or dealer which
is a corporation when such stock is purchased
directly from the issuer and not as part of a public
distribution: Provided, That any such credit ex
tended after April 16, 1971, shall become subject
upon renewal to such additional restrictions as
the Board of Governors may impose by regula
tion concerning the conditions upon which credit
may be extended for the purpose of making such
loan or contribution: A nd provided further, That
(1) all of the proceeds of such extension of
credit are so loaned or contributed to the capital
of the broker or dealer and (2) that all of the
proceeds of any withdrawal of such loan or
contribution of capital from the broker or dealer
by the customer or redemption of such stock shall
be used to reduce or retire said extension of
credit.
SECTION 221.3—MISCELLANEOUS
PROVISIONS
(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
as 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 de
scribed in paragraphs (o), (w), (y), or (z) of
this section or § 221.2 of this part except for
41
§ 221.3
REGULATION U
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 (Reg
ulation 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 or this section the bank may rely on the
statement executed by the customer if accepted
in good faith. To accept the customer’s statement
in good faith, the officer must (1) be alert to the
circumstances surrounding the 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 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 margin stock is “purpose credit”,
despite any temporary application of funds other
wise.
(2) Credit to enable the customer to reduce or
retire indebtedness which was originally incurred
to purchase a margin stock 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 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 cus
tomer under which the customer’s right or ability
to sell, pledge, or otherwise dispose of stock
owned by the customer is in any way restricted
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 per
tains generally to the customer’s assets unless a
substantial 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
maintenance of the particular credit: A n d pro
vided 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.
(d) 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 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 stock 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 determination described in
subparagraph (1) of this paragraph (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 shall from time to time remove
from the list described in subparagraph (2) of this
paragraph (d) stocks that cease to:
(i) Exist or of which the issuer ceases to exist,
or
(ii) Meet substantially the provisions of subparagraph (1) of this paragraph (d) and of
§ 221.4(e) (the Supplement to Regulation U).
(4) The foregoing notwithstanding, the Board
may 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 bank 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 ap
proval to, such security or any transaction therein.
Any statement in an advertisement or other simi
lar communication containing a reference to the
Board in connection with such stocks or such
list shall constitute such an unlawful representa
tion.
(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
42
§ 221.3
REGULATION U
addition of interest or service charges in respect
to the credit or of taxes on transactions in connec
tion with the credit.
(f) Transfers. 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 cir
cumstances giving rise to the transfer, is accepted
in good faith5 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: A nd provided further, That
any transfer pursuant to this paragraph is made
as a bona fide incident to a transaction not under
taken for the purpose of avoiding the requirements
of this part, the amount of the credit is not in
creased, and the collateral for the credit is not
changed; and, after such transfer, a bank may
permit such withdrawals and substitutions of col
lateral as are permitted in respect to a credit it
extends subject to this part.
(g) Reorganizations and recapitalizations. Noth
ing in this part shall be construed to prevent a
bank from permitting withdrawals or substitutions
of securities to enable a customer to participate
in a reorganization or recapitalization.
(h) Mistakes in good faith. 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) Reports. Every bank, and every person en
gaged 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 make such reports as the Board of
Governors of the Federal Reserve System may
require to enable it to perform the functions con
ferred upon it by the Securities Exchange Act of
1934(15 U.S.C. 78).
(k) Definitions. For the purposes of this part,
unless the context 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)), except that the term
“bank” does not include a bank which is a mem
ber of a national securities exchange.
(/) Stock. The term “stock” includes any se
curity 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; or any other security
which the Securities and Exchange Commission
shall deem to be of similar nature and consider
necessary or appropriate, by such rules and reg
ulations as it may prescribe in the public interest
or for the protection of investors, to treat as an
equity security such as any certificate of interest
or participation in any profit-sharing agreement,
preorganization certificate, or subscription, trans
ferable share, limited partnership interest, inter
est in a joint venture, or certificate of interest
in a business trust; or any put, call, straddle, or
other option or privilege of buying such a security
from or selling such a security to another without
being bound to do so.
(m) Credit subject to § 221.1. A “credit sub
ject 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 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 por
tion thereof except in circumstances that would
permit the withdrawal of that portion. Such identi
fication may be made by any reasonable method.
(2) Only the collateral required to be so identi
fied shall have loan value for purposes of § 221.1
5 As described in § 221.3(a).
43
REGULATION U
§ 221.3
or be subject to the restrictions therein specified
with respect to withdrawals and substitutions; and
(3) For any credit extended to the same cus
tomer that is not subject 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 identified as the bank would re
quire (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 de
cline 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 reason
ably foreseeable, provided the extension of credit
is supported by a statement executed by the cus
tomer 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, 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 ex
treme 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.
(o) Specialist. In the case of 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 transactions as a specialist in such se
curities, the maximum loan value of any stock
(except stock that has been identified as a security
held for investment pursuant to a rule of the
Commissioner of Internal Revenue (Regs, section
1-1236-1 (d))) shall be as determined by the bank
in good faith: Provided, That the specialist’s ex
change is a national securities exchange which
requires and submits to the Board of Governors
of the Federal Reserve System reports suitable for
supplying current information regarding special
ists’ 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 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-month 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 re
spect to a particular acquisition within 5 full busi
ness 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 re
maining collateral determined as of the date when
the credit was extended;
(3) While the customer has any credit outstand
ing at the bank under this paragraph no with
drawal 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 preced
ing clause have been fulfilled) the remaining stock
44
REGULATION U
§ 221.3
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 of a right under this para
graph, a bank may permit the right to be with
drawn from a credit subject to § 221.1 without
regard to any other requirement of this part.
(q) Credit to certain lenders. Any credit ex
tended 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 pur
poses are effectively and unmistakably separated
and disassociated from any financing or refinanc
ing, 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 appli
cable to credit subject to § 221.1, including provi
sions regarding withdrawal and substitution of
collateral.
(r) Convertible 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 securities exchange and the credit was
secured by such a security, and after October 20,
1967, there is substituted any stock as direct or in
direct 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 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 substi
tution to exceed the maximum loan value of the
collateral for the credit: Provided, That any reduc
tion 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 secu
rity convertible into a stock registered on a
national securities exchange, and any credit ex
tended after July 8, 1969, for the purpose of pur
chasing or carrying a security convertible into
margin stock, 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 collat
eral 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 considera
tion, presently or in the future, into a margin stock
or (ii) carrying a warrant or right to subscribe 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 sub
ject to § 221.1 except: (i) the entire amount of such
credit shall be considered a single credit treated sep
arately 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 complies with this part, and (ii) the maxi
mum loan value of the collateral shall be as pre
scribed from time to time in § 221.4 (the Supple
ment to Regulation U).
(3) Any convertible security originally eligible
as collateral for a credit extended under this para
graph shall be treated as such as long as continu
ously 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 ex
tended 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 re
duced by an amount equal to the maximum loan
value of the security withdrawn.
45
§ 221.3
REGULATION U
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 9 by a duly
authorized officer of the bank prior to such ex
tension. In determining whether or not an exten
sion of credit is for the purpose of conducting
such market-making activity, a bank may rely on
such a statement if executed and accepted in ac
cordance with the requirements of this paragraph
(w) and paragraph (a) of this section.
(2) An OTC market maker with respect to an
OTC margin stock is a dealer who has and main
tains minimum net capital, as defined in a rule of
the Securities and Exchange Commission (Rule
15c3-l (17 CFR 240.15c3-l)) or in the capital
rules of an exchange of which he is a member if the
members thereof are exempt therefrom by Rule
15c3-l (b)(2) of the Commission (17 CFR
240.15c3-1(b)(2)), of $25,000 plus $5,000 for
each such stock in excess of 5 in respect of which
he has filed and not withdrawn the notice on
Commission Form X-17A-12(1) (but in no case
does this subparagraph (2) require net capital of
more than $250,000), who is in compliance with
such rule of the Commission or exchange and who,
except when such activity is unlawful, meets all of
the following conditions with respect to such stock:
(1) he regularly publishes bona fide, competitive
bid and offer quotations in a recognized inter-dealer
quotation system, (ii) he furnishes bona fide, com
petitive bid and offer quotations to other brokers
and dealers on request, (iii) he is ready, willing, and
able to effect transactions in reasonable amounts,
and at his quoted prices, with other brokers and
dealers, (iv) he has a reasonable average rate of
inventory turnover.
(3) If all or a portion of the credit extended
pursuant to this paragraph (w) ceases to be for
the purpose specified in subparagraph (1) or the
dealer to whom the credit is extended ceases to be
an OTC market maker as defined in subparagraph
(2) , the credit or such portion thereof shall there
upon be treated as “a credit subject to § 221.1.”
(x) Combined purchase of mutual funds and
insurance. (1) An extension of purpose credit pro
vided for in a plan, program, or investment con
tract that is registered with the Securities and
Exchange Commission under the Securities Act of
1933 (15 U.S.C. 77) and provides for the acquisi-
(u) Arranging for credit. No bank shall ar
range 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 6
which is (1) a stock registered on a national securi
ties exchange, (2) an OTC margin stock,7 (3) a
debt security (i) convertible with or without con
sideration, presently or in the future, into a margin
stock or (ii) carrying any warrant or right to sub
scribe to or purchase, presently or in the future, a
margin stock, (4) any such warrant or right, (5)
any security issued by an investment company
other than a small business investment company
licensed under the Small Business Investment Com
pany Act of 1958 (15 U.S.C. 661) registered pur
suant 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 company are continu
ously invested in exempted securities.8
(w) OTC market maker exemption. (1) In the
case of credit extended to an OTC market maker,
as defined in subparagraph (2) of this paragraph
(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 maximum loan value of any OTC margin
stock (except stock that has been identified as a
security held for investment pursuant to a rule of
the Commissioner of Internal Revenue (Regs,
section 1-1236-1 (d))) shall be determined by
the bank in good faith: Provided, That in respect
of each such stock the OTC market maker shall
have filed with the Securities and Exchange Com
mission a notice of his intent to begin or continue
such market-making activity (Securities and Ex
change Commission Form X-17A-12(1)) and all
other reports required to be filed by market
makers in OTC margin stock pursuant to a rule
of the Commission (Rule 17a-12 (17 CFR 240.
17a-12)), shall not have ceased to engage in such
market-making activity, and shall have a reason
able average rate of inventory turnover in such
stock: A n d provided further, That the bank shall
obtain and retain in its records for at least 3 years
after such credit is extinguished a statement in
6As defined in §221.3(/).
7As defined in § 221.3(d).
8As defined in 15 U.S.C. 78c(a)(12).
9
46
As described in paragraph (a) of this section.
§ 221.3
REGULATION U
tion both of a security issued by an investment
company described in paragraph (v)(5) 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 applicable interest), the maximum loan
value of such security shall be 40 per cent of its
current market value, as determined by any rea
sonable method.
(2) Sections 221.1 and 221.3(t) of this Part
shall not apply to any credit extended to a person
registered pursuant to § 207.1(a) of this Chapter
(Regulation G) who extends credit pursuant to
§ 207.4(f)(1) of this Chapter, Provided, That:
(i) the credit extended pursuant to this subparagraph is secured by securities that are issued
by an investment company described in paragraph
(v)(5) of this section, and are carried for the ac
count of one or more customers under a plan,
program, or investment contract described in subparagraph (1) of this paragraph (and the bank re
ceives written notice from the recipient of the
credit to this effect); and
(ii) the provisions of such plan, program, or
investment contract conform to the provisions of
Rule 15c2-l of the Securities and Exchange Com
mission concerning hypothecation of customers’
securities (17 CFR 240.15c2-l).
(y) Third-market maker exemption. (1) In the
case of credit extended to a third-market maker,
as defined in subparagraph (2) of this paragraph
(y), for the purpose of purchasing or carrying a
stock that is registered on a national securities
exchange (other than a convertible debt security
described in paragraph (t)(l) of this section) in
order to conduct the market-making activity of
such a market maker, the maximum loan value
of any stock (except (i) a convertible debt secu
rity described in paragraph (t)(l) of this section,
and (ii) stock that has been identified as a secu
rity held for investment pursuant to a rule of the
Commissioner of Internal Revenue (Regs, section
1-1236-1 (d))) shall be determined by the bank
in good faith: Provided, That in respect of each
such stock he shall, at least five full business days
prior to such extension of credit, have filed with
the Securities and Exchange Commission a notice
of his intent to begin or continue such market
making activity, and thereafter all other reports
required to be filed by third-market makers pur
suant to a rule of the Securities and Exchange
47
Commission and, except when such activity is
unlawful, shall not have ceased to engage in such
market-making activity: A nd provided further,
That 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-3,
executed by the third-market maker who is the
recipient of such credit and executed and ac
cepted in good faith 10 by a duly authorized officer
of the bank prior to such extension. In determin
ing whether or not an extension of credit is for
the purpose of conducting such market-making
activity, a bank may rely on such a statement, if
executed and accepted in accordance with the
requirements of this paragraph (y) and para
graph (a) of this section.
(2) A third-market maker with respect to a
stock that is registered on a national securities
exchange is a dealer who has and maintains net
capital, as defined in a rule of the Securities and
Exchange Commission (Rule 15c3-l (17 CFR
240.15c3-l)), or in the capital rules of an ex
change of which he is a member if the members
thereof are exempt therefrom by Rule 15c3-l(b)
(2) of the Commission (17 CFR 240-15c3-1(b)
(2)), of $100,000 plus $20,000 for each stock in
excess of five in respect of which he has filed and
not withdrawn a notice with the Securities and
Exchange Commission (but in no case does this
subparagraph (2) require net capital of more than
$500,000) who is in compliance with such rule of
the Commission and who, except when such ac
tivity is unlawful, meets all the following condi
tions with respect to such stock: (i) He furnishes
bona fide, competitive bid and offer quotations to
other brokers and dealers, in the stocks for which
he makes a market, at all times on request, (ii) he
is ready, willing, and able to effect transactions for
his own account in reasonable amounts, and at his
quoted prices, with other brokers and dealers, and
(iii) he has a reasonable average rate of inventory
turnover in the stock.
(3) If all or a portion of the credit extended
pursuant to this paragraph (y) ceases to be for
the purpose specified in subparagraph (1) of this
paragraph or the dealer to whom the credit is
extended ceases to be a third-market maker as
defined in subparagraph (2) of this paragraph, the
10 As described in paragraph (a) of this section.
§ 221.3
REGULATION U
credit or such portion thereof shall thereupon be
treated as “a credit subject to § 221.1.”
(z) Block positioner exemption. (1) In the case
of credit extended to a block positioner, as defined
in subparagraph (2) of this paragraph (z), for the
purpose of financing the activity of block posi
tioning, the maximum loan value of any margin
stock obtained in the ordinary course of the ac
tivity of block positioning as described in subparagraph (2) of this paragraph (z) (except (i)
a convertible debt security described in paragraph
(t) (1) of this section and (ii) stock that has
been identified as a security held for investment
pursuant to a rule of the Commissioner of In
ternal Revenue (Regs, section 1-1236-1(d)))
shall be determined by the bank in good faith:
Provided, That in respect of such activity he shall
have filed with the Securities and Exchange Com
mission a notice of undertaking such activity as
prescribed by the Commission, and all reports
required to be filed by block positioners: A n d
provided further, That the bank shall obtain and
retain in its records for at least 3 years after
such credit is extinguished a statement in con
formity with the requirements of Federal Reserve
Form U-5 and paragraph (a) of this section,
executed by the block positioner who is the recip
ient of such credit and executed and accepted in
good faith 11 by a duly authorized officer of the
bank prior to such extension. In determining
whether or not an extension of credit is for the
purpose of conducting such block positioning ac
tivity, a bank may rely on such a statement if
executed and accepted in accordance with the
requirements of this paragraph (z) and paragraph
(a) of this section. In determining whether or not
an extension of time has been granted pursuant
to subparagraph (4) of this paragraph (z) and
whether or not such extension of time is commen
surate with the circumstances, the bank may rely
on a statement executed by an officer of the ex
change or association on behalf of the committee
in conformity with the requirements of Federal
Reserve Form U-6 and paragraph (a) of this sec
tion.
(2) A block positioner is a dealer who (i) is
registered with the Securities and Exchange Com
11As described in paragraph (a) of this section.
48
mission under section 15 of the Securities Ex
change Act of 1934 (15 U.S.C. 78o) and has a
minimum net capital, as defined in a rule of the
Securities and Exchange Commission (Rule 15c31 (17 CFR 240.15c3-l)) or in the capital rules
of an exchange of which he is a member if the
members thereof are exempt therefrom by Rule
15c3-l (b)(2) of the Commission (17 CFR
240.15c3-l(b) (2)), of $1 million, (ii) engages in
the activity of purchasing long or selling short as
principal, from time to time, from or to a cus
tomer (other than a partner or a joint venture or
other entity in which a partner of the dealer, or
the dealer itself, participates or a person “associ
ated with” such dealer as defined in section 3(a)
(18) of the Securities Exchange Act of 1934) a
block of stock (other than a convertible debt
security as described in paragraph (t)(l) of this
section) with a current market value of $200,000
or more in a single transaction or in several
transactions at approximately the same time from
a single source to facilitate a sale or purchase by
such customer, (iii) certifies to the lending bank
that he has determined in the exercise of reason
able diligence that the block could not be sold
to or purchased from others on equivalent or
better terms, and (iv) sells the shares comprising
such block as rapidly as possible commensurate
with the circumstances. In the case where a block
positioner acquires a block from a broker who
acts as agent for several sellers, such acquisition
shall be deemed for purposes of this section to
be an acquisition from a single source.
(3) No credit shall be extended or maintained
pursuant to this paragraph (z) in respect of any
such block of stock or portion thereof which the
block positioner has held continuously for more
than 20 business days, and any credit extended
pursuant to this paragraph (z) shall be extin
guished or brought into conformity with the
initial margin requirements of §§ 221.1 and 221.4
before the expiration of such 20-day period. For
the purposes of this subparagraph, a block or
portion thereof shall be treated as not having been
held continuously only to the extent that there
has been a net sale (or in the case of short posi
tions, net purchase) of such securities (whether
or not represented by the same certificate) during
such 20-day period.
§ 221.3
REGULATION U
(4) In exceptional cases the 20-day period
specified in subparagraph (3) of this paragraph
(z) may on the application of the block posi
tioner, be extended for one or more periods
limited to 5 business days each commensurate
with the circumstances by any regularly consti
tuted committee of a national securities exchange
having jurisdiction over the business conduct of
its members, of which the block positioner is a
member or through which his block transaction
was effected, or by a committee of a national
securities association, if effected in the over-thecounter market: Provided, That such committee
is satisfied that the block positioner is acting in
good faith in making the application and that the
circumstances in fact warrant such treatment.
[SECTION 221.4—SUPPLEMENT, containing maximum loan values, retention requirement, and requirements for
inclusion on list of OTC margin stock, is printed separately.]
49
SPECIMEN ONLY
F.R. Form U-l
Rev. 12/76
Exp-12/79
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE OF A STOCK-SECURED EXTENSION OF CREDIT BY
(Name o f Bank)
(FEDERAL RESERVE FORM U-l)
A FALSE OR DISHONEST STATEMENT ON THIS FORM MAY BE PUNISHABLE BY FINE OR IMPRISONMENT (U.S. CODE,
TITLE 15, SECTION 78ff AND TITLE 18, SECTIONS 1001, 1005 AND 1014). A BORROWER WHO FALSELY CERTIFIES
THE PURPOSE OF A CREDIT ON THIS FORM OR OTHERWISE WILLFULLY OR INTENTIONALLY EVADES THE
PROVISIONS OF REGULATION U WILL ALSO VIOLATE FEDERAL RESERVE REGULATION X, “RULES GOVERNING
BORROWERS WHO OBTAIN SECURITIES CREDIT” .
Instructions:
(1) Section 221.3(a) of Regulation U requires that a statement of purpose must be obtained in connection with any extension of
credit by a bank secured directly or indirectly by any stock. The term “stock” is defined in section 221.3(/) and includes any
security commonly known as a stock; any voting trust certificate; any security convertible, with or without consideration, into
such security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right.
(2) Part I (3) and (4) need be filled in only if the purpose of the credit described in Part I (1) is other than to purchase or carry
margin stock. The term “margin stock” is defined in section 221.3(v) and generally means (1) stocks that are registered on a
national securities exchange and stocks that are on the Federal Reserve Board’s List of OTC Margin Stocks, (2) debt securities
(bonds) that are convertible into such stocks and (3) shares of most mutual funds.
(3) Part II “Date and source of valuation” need be filled in only if such source is other than regularly published information in a
journal of general circulation.
(4) Part II, except for the certification by the officer of the bank, need not be completed in the case of a credit of $5,000 or less
which is not for the purpose of purchasing or carrying margin stock. However, in such cases, Part I must be completed.
(5) Please print or type (if space is inadequate attach separate sheet).*1
PART I To be completed by borrower(s)
(1) Is this credit in the amount of $.................................... or any part thereof, for the purpose of YES NO
purchasing or carrying margin stock?
□ □
If “no”, describe the specific purpose............................................................................................
(2) In addition to this credit, do you have any other outstanding credit that has been extended by
this bank, or has this bank agreed to extend additional credit to you?
(3) Is any of the collateral listed in tables (1) and (2) of Part II to be delivered, or has any such
collateral been delivered, from a bank, broker, dealer or person other than you?
LJ LJ
LJ LJ
If “yes”, from whom?.................................................................... Againstpayment to deliverer? □ □
(4) Has any of the collateral listed in Part II been owned less than 30 days?
□ □
The undersigned has (have) read this form and any attachments thereto and hereby certifies and affirms that to
the best of my (our) knowledge and belief the information contained therein is true, accurate and complete.
Furthermore, to the best of my (our) knowledge, the securities listed as collateral in Part II are authentic, gen
uine, unaltered, and not stolen, forged or counterfeit.
SIGNED.
(Borrower’s signature)
(Date)
SIGNED.
(Borrower’s signature)
(Print or type name)
(Print or type name)
TH IS FORM SH O U LD N O T BE SIGNED IN BLANK
51
(Date)
PART II To be completed by bank
(1) Collateral consisting of stock, other than debt securities convertible into margin stock. The maximum loan
value of such stock under the current Supplement to Regulation U is......... per cent of its current market value.
Issue
No. o f shares
Market price
per share
Date and source of
valuation
Total market value
per issue
(2) Collateral consisting of debt securities convertible into margin stock. The maximum loan value of such
debt securities under the current Supplement to Regulation U is......... per cejit of the current market value.
Principal
amount
Issue
Market price
Date and source o f
valuation
Total market value
per issue
Market price
Source o f valuation
Good faith
loan value
(3) Other collateral.
Describe briefly
The undersigned, a duly authorized officer of the bank, (i) is aware that this stock-secured credit may be subject
to the credit restrictions of Regulation U, (ii) has read this form and any attachments thereto, (iii) has accepted
the customer’s statement in Part I in good faith as required by Regulation U*, and (iv) hereby certifies and af
firms that, to the best of the officer’s knowledge and belief, all the information contained herein is true, accu
rate and complete. If any of the securities described above in tables 1 and 2 that directly secure the credit have
been or will be physically delivered to the bank, the undersigned officer further certifies that he or she (a) has ex
amined, or will examine, the physical aspects of such securities and performed, or will perform, such validation
procedures as are required by bank policy and government regulations promulgated under section 17(f) of the
Securities Exchange Act of 1934, as amended, or has been informed that another employee of the bank has per
formed or will perform such functions, (b) if any of such securities are not or will not be registered in the name
of the borrower or its nominee, has examined the written consent of the registered owner to pledge such secur
ities, and (c) is satisfied to the best of the officer’s knowledge and belief that such securities are genuine and not
stolen or forged and their faces have not been altered.
SIGNED.
Date.
(Title)
(Bank officer’ s signature)
(Print or type name)
*To accept this statement in good faith, the officer of the bank (1) must be alert to the circumstances surrounding the credit and
(2) if the officer has any information which would cause a prudent person not to accept the statement without inquiry, must have
investigated and be satisfied that the statement is truthful. Among the facts which would require such investigation are receipt of
the statement through the mail or from a third party.
THIS FORM MUST BE RETAINED BY THE BANK FOR AT LEAST THREE YEARS
AFTER THE CREDIT IS EXTINGUISHED
52
STATUTORY APPENDIX
STATUTORY APPENDIX
SECURITIES EXCHANGE ACT OF 1934
Act of June 6, 1934 (48 Stat. 881)
(U.S. Code, Title 15, Sec. 78)
Definitions
Sec. 3. (a) When used in this title, unless the
context otherwise requires—
(1) The term “exchange” means any organiza
tion, association, or group of persons, whether
incorporated or unincorporated, which constitutes,
maintains, or provides a market place or facilities
for bringing together purchasers and sellers of
securities or for otherwise performing with respect
to securities the functions commonly performed
by a stock exchange as that term is generally
understood, and includes the market place and
the market facilities maintained by such exchange.
* *
*
(3)(A) The term “member” when used with
respect to a national securities exchange means
(i) any natural person permitted to effect trans
actions on the floor of the exchange without the
services of another person acting as broker, (ii)
any registered broker or dealer with which such
a natural person is associated, (iii) any registered
broker or dealer permitted to designate as a rep
resentative such a natural person, and (iv) any
other registered broker or dealer which agrees to
be regulated by such exchange and with respect
to which the exchange undertakes to enforce
compliance with the provisions of this title, the
rules and regulations thereunder, and its own
rules. For purposes of sections 6(b)(1), 6(b)(4),
6(b)(6), 6(b)(7), 6(d), 17(d), 19(d), 19(e), 19(g),
19(h), and 21 of this title, the term “member” when
used with respect to a national securities exchange
also means, to the extent of the rules of the ex
change specified by the Commission*, any person
required by the Commission to comply with such
rules pursuant to section 6(f) of this title.
(B) The term “member” when used with re
spect to a registered securities association means
any broker or dealer who agrees to be regulated
by such association and with respect to whom the
association undertakes to enforce compliance with
* As used here and elsewhere in the Securities Exchange
Act of 1934, “Commission” means the Securities and
Exchange Commission.
53
the provisions of this title, the rules and regula
tions thereunder, and its own rules.
(4) The term “broker” means any person en
gaged in the business of effecting transactions in
securities for the account of others, but does not
include a bank.
(5) The term “dealer” means any person en
gaged in the business of buying and selling secu
rities for his own account, through a broker or
otherwise, but does not include a bank, or any
person insofar as he buys or sells securities for
his own account, either individually or in some
fiduciary capacity, but not as a part of a regular
business.
(6) The term “bank” means (A) a banking in
stitution organized under the laws of the United
States, (B) a member bank of the Federal Re
serve System, (C) any other banking institution,
whether incorporated or not, doing business under
the laws of any State or of the United States, a
substantial portion of the business of which con
sists of receiving deposits or exercising fiduciary
powers similar to those permitted to national
banks under section 11 (k) of the Federal Reserve
Act, as amended, and which is supervised and
examined by State or Federal authority having
supervision over banks, and which is not oper
ated for the purpose of evading the provisions
of this title, and (D) a receiver, conservator, or
other liquidating agent of any institution or firm
included in clauses (A), (B), or (C) of this
paragraph.
*
*
*
(8) The term “issuer” means any person who
issues or proposes to issue any security; except
that with respect to certificates of deposit for
securities, voting-trust certificates, or collateraltrust certificates, or with respect to certificates of
interest or shares in an unincorporated investment
trust not having a board of directors or of the
fixed, restricted management, or unit type, the
term “issuer” means the person or persons per
forming the acts and assuming the duties of de
positor or manager pursuant to the provisions of
the trust or other agreement or instrument under
which such securities are issued; and except that
with respect to equipment-trust certificates or like
securities, the term “issuer” means the person by
whom the equipment or property is, or is to be,
used.
STATUTORY APPENDIX
(9) The term “person” means a natural person,
company, government, or political subdivision,
agency, or instrumentality of a government.
(10) The term “security” means any note,
stock, treasury stock, bond, debenture, certificate
of interest or participation in any profit-sharing
agreement or in any oil, gas, or other mineral
royalty or lease, any collateral-trust certificate,
preorganization certificate or subscription, trans
ferable share, investment contract, voting-trust
certificate, certificate of deposit, for a security,
or in general, any instrument commonly known
as a “security”; or any certificate of interest or
participation in, temporary or interim certificate
for, receipt for, or warrant or right to subscribe
to or purchase, any of the foregoing; but shall
not include currency or any note, draft, bill of
exchange, or banker’s acceptance which has a
maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any
renewal thereof the maturity of which is likewise
limited.
(11) The term “equity security” means any
stock or similar security; or any security convert
ible, with or without consideration, into such a
security, or carrying any warrant or right to sub
scribe to or purchase such a security; or any such
warrant or right; or any other security which the
Commission shall deem to be of similar nature
and consider necessary or appropriate, by such
rules and regulations as it may prescribe in the
public interest or for the protection of investors,
to treat as an equity security.
(12) The term “exempted security” or “ex
empted securities” includes securities which are
direct obligations of, or obligations guaranteed as
to principal or interest by, the United States;
such securities issued or guaranteed by corpora
tions in which the United States has a direct or
indirect interest as shall be designated for exemp
tion by the Secretary of the Treasury as necessary
or appropriate in the public interest or for the
protection of investors; municipal securities, as
defined in section 3(a)(29) of this title: Provided,
however, That municipal securities shall not be
deemed to be “exempted securities” for purposes
of sections 15, 15A (except subsections (b)(6),
(b)(ll), and (g)(2) thereof), and 17A of this title;
any interest or participation in any common trust
fund or similar fund maintained by a bank ex
clusively for the collective investment and re
investment of assets contributed thereto by such
bank in its capacity as trustee, executor, admin
istrator, or guardian; any interest or participation
in a collective trust fund maintained by a bank
or in a separate account maintained by an insur
ance company which interest or participation is
issued in connection with (A) a stock bonus, pen
sion, or profit-sharing plan which meets the re
quirements for qualification under section 401 of
the Internal Revenue Code of 1954, or (B) an
annuity plan which meets the requirements for the
deduction of the employer’s contribution under
section 404(a)(2) of such Code, other than
any plan described in clause (A) or (B) of this
paragraph which covers employees some or all
of whom are employees within the meaning of
section 401(c)(1) of such Code, and such other
securities (which may include, among others, un
registered securities, the market in which is pre
dominantly intrastate) as the Commission may,
by such rules and regulations as it deems con
sistent with the public interest and the protection
of investors, either unconditionally or upon speci
fied terms and conditions or for stated periods,
exempt from the operation of any one or more
provisions of this title which by their terms do
not apply to an “exempted security” or to “ex
empted securities.”
(13) The terms “buy” and “purchase” each
include any contract to buy, purchase, or other
wise acquire.
(14) The terms “sale” and “sell” each include
any contract to sell or otherwise dispose of.
* *
*
*
*
(16) The term “State” means any State of the
United States, the District of Columbia, Puerto
Rico, the Canal Zone, the Virgin Islands, or any
other possession of the United States.
*
(b) The Commission and the Board of
Governors of the Federal Reserve System, as to
matters within their respective jurisdictions, shall
have power by rules and regulations to define
technical, trade, accounting, and other terms used
in this title, consistently with the provisions and
purposes of this title.
Se c . 3.
* * *
[U.S.C., title 15, sec. 78c.]
National securities exchanges
Se c . 6.
a
n a tio n a l
and
tio n
54
(a ) A n
c o n d i t io n s
and
exchange
s e c u r itie s
in
m a y b e re g is te r e d
exchange
h e r e in a fte r
accordan ce
under
p r o v id e d
w ith
th e
in
th e
as
te r m s
th is
p r o v is io n s
sec
of
STATUTORY APPENDIX
section 19(a) of this title, by filing with the Com
mission an application for registration in such
form as the Commission, by rule, may prescribe
containing the rules of the exchange and such
other information and documents as the Com
mission, by rule, may prescribe as necessary or
appropriate in the public interest or for the pro
tection of investors.
(b) An exchange shall not be registered as a
national securities exchange unless the Commis
sion determines that—
(1) Such exchange is so organized and has the
capacity to be able to carry out the purposes of
this title and to comply, and (subject to any rule
or order of the Commission pursuant to section
17(d) or 19(g)(2) of this title) to enforce compli
ance by its members and persons associated with
its members, with the provisions of this title, the
rules and regulations thereunder, and the rules of
the exchange.
***
(6) The rules of the exchange provide that
(subject to any rule or order of the Commission
pursuant to section 17(d) or 19(g)(2) of this title)
its members and persons associated with its mem
bers shall be appropriately disciplined for viola
tion of the provisions of this title, the rules or
regulations thereunder, or the rules of the ex
change, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure,
being suspended or barred from being associated
with a member, or any other fitting sanction.
***
[U.S.C., title 15, sec. 78f.]
Margin requirements
(a) For the purpose of preventing the
excessive use of credit for the purchase or carry
ing of securities, the Board of Governors of the
Federal Reserve System shall, prior to the effec
tive date of this section and from time to time
thereafter, prescribe rules and regulations with re
spect to the amount of credit that may be initially
extended and subsequently maintained on any se
curity (other than an exempted security). For the
initial extension of credit, such rules and regula
tions shall be based upon the following standard:
An amount not greater than whichever is the
higher of—
(1) 55 per centum of the current market price
of the security, or
(2) 100 per centum of the lowest market price
Se c . 7.
55
of the security during the preceding thirty-six
calendar months, but not more than 75 per
centum of the current market price.
Such rules and regulations may make appropri
ate provision with respect to the carrying of
undermargined accounts for limited periods and
under specified conditions; the withdrawal of
funds or securities; the substitution or additional
purchases of securities; the transfer of accounts
from one lender to another; special or different
margin requirements for delayed deliveries, short
sales, arbitrage transactions, and securities to
which paragraph (2) of this subsection does not
apply; the bases and the methods to be used in
calculating loans, and margins and market prices;
and similar administrative adjustments and de
tails. For the purposes of paragraph (2) of this
subsection, until July 1, 1936, the lowest price at
which a security has sold on or after July 1, 1933,
shall be considered as the lowest price at which
such security has sold during the preceding thirtysix calendar months.
(b) Notwithstanding the provisions of subsec
tion (a) of this section, the Board of Governors
of the Federal Reserve System, may, from time
to time, with respect to all or specified securities
or transactions, or classes of securities, or classes
of transactions, by such rules and regulations (1)
prescribe such lower margin requirements for the
initial extension or maintenance of credit as it
deems necessary or appropriate for the accommo
dation of commerce and industry, having due re
gard to the general credit situation of the country,
and (2) prescribe such higher margin require
ments for the initial extension or maintenance
of credit as it may deem necessary or appropriate
to prevent the excessive use of credit to finance
transactions in securities.
(c) It shall be unlawful for any member of a
national securities exchange or any broker or
dealer, directly or indirectly, to extend or main
tain credit or arrange for the extension or mainte
nance of credit to or for any customer—
(1) On any security (other than an exempted
security), in contravention of the rules and regu
lations which the Board of Governors of the
Federal Reserve System shall prescribe under
subsections (a) and (b) of this section;
(2) Without collateral or on any collateral
other than securities, except in accordance with
such rules and regulations as the Board of Gov
ernors of the Federal Reserve System may pre
STATUTORY APPENDIX
scribe (A) to permit under specified conditions
and for a limited period any such member, broker,
or dealer to maintain a credit initially extended in
conformity with the rules and regulations of the
Board of Governors of the Federal Reserve Sys
tem, and (B) to permit the extension or mainte
nance of credit in cases where the extension or
maintenance of credit is not for the purpose of
purchasing or carrying securities or of evading or
circumventing the provisions of paragraph (1) of
this subsection.
(d) It shall be unlawful for any person not sub
ject to subsection (c) to extend or maintain credit
or to arrange for the extension or maintenance
of credit for the purpose of purchasing or carry
ing any security, in contravention of such rules
and regulations as the Board of Governors of the
Federal Reserve System shall prescribe to pre
vent the excessive use of credit for the purchasing
or carrying of or trading in securities in circum
vention of the other provisions of this section.
Such rules and regulations may impose upon all
loans made for the purpose of purchasing or
carrying securities limitations similar to those
imposed upon members, brokers, or dealers by
subsection (c) of this section and the rules and
regulations thereunder. This subsection and the
rules and regulations thereunder shall not apply
(A) to a loan made by a person not in the ordi
nary course of his business, (B) to a loan on an
exempted security, (C) to a loan to a dealer to aid
in the financing of the distribution of securities
to customers not through the medium of a na
tional securities exchange, (D) to a loan by a
bank on a security other than an equity security,
or (E) to such other loans as the Board of Gov
ernors of the Federal Reserve System shall, by
such rules and regulations as it may deem neces
sary or appropriate in the public interest or for
the protection of investors, exempt, either uncon
ditionally or upon specified terms and conditions
or for stated periods, from the operation of this
subsection and the rules and regulations there
under.
***
(f)(1) It is unlawful for any United States
person, or any foreign person controlled by a
United States person or acting on behalf of or in
conjunction with such person, to obtain, receive,
or enjoy the beneficial use of a loan or other ex
tension of credit from any lender (without regard
56
to whether the lender’s office or place of business
is in a State or the transaction occurred in whole
or in part within a State) for the purpose of (A)
purchasing or carrying United States securities, or
(B) purchasing or carrying within the United
States of any other securities, if, under this sec
tion or rules and regulations prescribed there
under, the loan or other credit transaction is
prohibited or would be prohibited if it had been
made or the transaction had otherwise occurred
in a lender’s office or other place of business in
a State.
(2) For the purposes of this subsection—
(A) The term “United States person” includes
a person which is organized or exists under the
laws of any State or, in the case of a natural
person, a citizen or resident of the United States;
a domestic estate; or a trust in which one or more
of the foregoing persons has a cumulative direct
or indirect beneficial interest in excess of 50 per
centum of the value of the trust.
(B) The term “United States security” means a
security (other than an exempted security) issued
by a person incorporated under the laws of any
State, or whose principal place of business is
within a State.
(C) The term “foreign person controlled by a
United States person” includes any noncorporate
entity in which United States persons directly or
indirectly have more than a 50 per centum bene
ficial interest, and any corporation in which one
or more United States persons, directly or indi
rectly, own stock possessing more than 50 per
centum of the total combined voting power of all
classes of stock entitled to vote, or more than 50
per centum of the total value of shares of all
classes of stock.
(3) The Board of Governors of the Federal
Reserve System may, in its discretion and with
due regard for the purposes of this section, by
rule or regulation exempt any class of United
States persons or foreign persons controlled by a
United States person from the application of this
subsection.
(U.S.C., title 15, sec. 78g.]
Restrictions on borrowing by members, brokers,
and dealers
Sec. 8. It shall be unlawful for any registered
broker or dealer, member of a national securities
exchange, or broker or dealer who transacts a
STATUTORY APPENDIX
business in securities through the medium of any (3) that will permit such securities to be hypothe
member of a national securities exchange, di cated, or subjected to any lien or claim of the
rectly or indirectly—
pledgee, for a sum in excess of the aggregate in
(a) To borrow in the ordinary course of busi debtedness of such customers in respect to such
ness as a broker or dealer on any security (other securities.
(c) To lend or arrange for the lending of any
than an exempted security) registered on a na
tional securities exchange except (1) from or securities carried for the account of any customer
through a member bank of the Federal Reserve without the written consent of such customer or
System, (2) from any nonmember bank which in contravention of such rules and regulations as
shall have filed with the Board of Governors of the Commission shall prescribe for the protection
the Federal Reserve System an agreement, which of investors.
is still in force and which is in the form pre
[U.S.C., title 15, sec. 78h.]
scribed by the Board, undertaking to comply with
***
all provisions of this Act, the Federal Reserve Trading by members of exchanges, brokers, and
Act, as amended, and the Banking Act of 1933,
dealers
which are applicable to member banks and which
***
relate to the use of credit to finance transactions
(d) It shall be unlawful for a mem
in securities, and with such rules and regulations
as may be prescribed pursuant to such provisions ber of a national securities exchange who is both
of law or for the purpose of preventing evasions a dealer and a broker, or for any person who
thereof, or (3) in accordance with such rules and both as a broker and a dealer transacts a business
regulations as the Board of Governors of the Fed in securities through the medium of a member or
eral Reserve System may prescribe to permit loans otherwise, to effect through the use of any facility
between such members and/or brokers and/or of a national securities exchange or of the mails
dealers, or to permit loans to meet emergency or of any means or instrumentality of interstate
needs. Any such agreement filed with the Board commerce, or otherwise in the case of a member,
of Governors of the Federal Reserve System shall (1) any transaction in connection with which di
be subject to termination at any time by order of rectly or indirectly, he extends or maintains or
for the extension or maintenance of
the Board, after appropriate notice and oppor arranges
credit
to
or
for a customer on any security (other
tunity for hearing, because of any failure by such
than
an
exempted
security) which was a part of
bank to comply with the provisions thereof or
a
new
issue
in
the
distribution of which he par
with such provisions of law or rules or regula
ticipated
as
a
member
a selling syndicate or
tions; and, for any willful violation of such agree group within thirty days ofprior
to such transaction:
ment, such bank shall be subject to the penalties Provided, That credit shall not
be deemed ex
provided for violations of rules and regulations tended by reason of a bona fide delayed
prescribed under this title. The provisions of sec of any such security against full paymentdelivery
of the
tions 21 and 25 of this title shall apply in the case entire purchase price thereof upon such delivery
of any such proceeding or order of the Board of
thirty-five days after such purchase, * * *
Governors of the Federal Reserve System in the within
[U.S.C., title 15, sec. 78k.]
same manner as such provisions apply in the case
***
of proceedings and orders of the Commission.
of securities
(b) In contravention of such rules and regula Registration
***
tions as the Commission shall prescribe for the
Any security for which un
protection of investors to hypothecate or arrange listed trading privileges
are continued or extended
for the hypothecation of any securities carried for pursuant to this subsection
shall be deemed to be
the account of any customer under circumstances registered on a national securities
(1) that will permit the commingling of his securi the meaning of this Title. * * * exchange within
ties without his written consent with the securities
[U.S.C., title 15, sec. 78/.]
* * *
of any other customer, (2) that will permit such
securities to be commingled with the securities of Accounts and records, reports, and
any person other than a bona fide customer, or
examinations
57
Sec.
11.
Se c .
12.
( f)
(6)
STATUTORY APPENDIX
* *
*
17. (g) Any broker, dealer, or other per
son extending credit who is subject to the rules
and regulations prescribed by the Board of Gov
ernors of the Federal Reserve System pursuant to
this title shall make such reports to the Board as
it may require as necessary or appropriate to en
able it to perform the functions conferred upon
it by this title. If any such broker, dealer, or other
person shall fail to make any such report or fail
to furnish full information therein, or, if in the
judgment of the Board it is otherwise necessary,
such broker, dealer, or other person shall permit
such inspections to be made by the Board with
respect to the business operations of such broker,
dealer, or other person as the Board may deem
necessary to enable it to obtain the required
information.
[U.S.C., title 15, sec. 78q.]
***
Sec.
this title shall be construed to mean that the par
ticular authority has in any way passed upon the
merits of, or given approval to, any security or
any transaction or transactions therein, nor shall
such action or failure to act with regard to any
statement or report filed with or examined by such
authority pursuant to this title or rules and regu
lations thereunder, be deemed a finding by such
authority that such statement or report is true
and accurate on its face or that it is not false or
misleading. It shall be unlawful to make, or cause
to be made, to any prospective purchaser or seller
of a security any representation that any such
action or failure to act by any such authority is
to be so construed or has such effect.
[U.S.C., title 15, sec. 78z.]
***
Validity of contracts
S e c . 2 9 . (a ) A n y c o n d i t io n , s tip u la tio n , o r p r o
Rules, regulations, and orders; annual reports
v is io n
Sec. 23. (a)(1) The Commission, the Board of
Governors of the Federal Reserve System, and
the other agencies enumerated in section 3(a)(34)
of this title shall each have power to make such
rules and regulations as may be necessary or
appropriate to implement the provisions of this
title for which they are responsible or for the
execution of the functions vested in them by this
title, and may for such purposes classify persons,
securities, transactions, statements, applications,
reports, and other matters within their respective
jurisdictions, and prescribe greater, lesser, or
different requirements for different classes thereof.
No provision of this title imposing any liability
shall apply to any act done or omitted in good
faith in conformity with a rule, regulation, or
order of the Commission, the Board of Gover
nors of the Federal Reserve System, other agency
enumerated in section 3(a)(34) of this title, or any
self-regulatory organization, notwithstanding that
such rule, regulation, or order may thereafter be
amended or rescinded or determined by judicial
or other authority to be invalid for any reason.
***
[U.S.C., title 15, sec. 78w.]
***
r e g u la tio n
any
p erson
to
w a iv e
th e r e u n d e r ,
or
of
any
ru le
c h a n g e r e q u ir e d th e r e b y s h a ll b e v o id .
c o m p li a n c e
of
an e x
(b) Every contract made in violation of any
provision of this title or of any rule or regulation
thereunder, and every contract (including any
contract for listing a security on an exchange)
heretofore or hereafter made the performance of
which involves the violation of, or the continu
ance of any relationship or practice in violation
of, any provision of this title or any rule or regu
lation thereunder, shall be void (1) as regards the
right of any person who, in violation of any such
provision, rule, or regulation, shall have made or
engaged in the performance of any such contract,
and (2) as regards the rights of any person who,
not being a party to such contract, shall have
acquired any right thereunder with actual knowl
edge of the facts by reason of which the making
or performance of such contract was in violation
of any such provision, rule or regulation: * * *
(c) Nothing in this title shall be construed (1)
to affect the validity of any loan or extension of
credit (or any extension or renewal thereof) made
or of any lien created prior or subsequent to the
enactment of this title, unless at the time of the
making of such loan or extension of credit (or
extension or renewal thereof) or the creating of
such lien, the person making such loan or exten
sion of credit (or extension or renewal thereof)
Unlawful representations
Sec . 26. No action or failure to act by the
Commission or the Board of Governors of the
Federal Reserve System, in the administration of
b in d in g
w ith a n y p r o v is io n o f th is title o r o f a n y r u le o r
58
STATUTORY APPENDIX
or acquiring such lien shall have actual knowledge
of facts by reason of which the making of such
loan or extension of credit (or extension or re
newal thereof) or the acquisition of such lien is
a violation of the provisions of this title or any
rule or regulation thereunder, or (2) to afford a
defense to the collection of any debt or obligation
or the enforcement of any lien by any person who
shall have acquired such debt, obligation, or lien
in good faith for value and without actual knowl
edge of the violation of any provision of this title
or any rule or regulation thereunder affecting the
legality of such debt, obligation, or lien.
ties without the jurisdiction of the United States,
unless he transacts such business in contravention
of such rules and regulations as the Commission
may prescribe as necessary or appropriate to pre
vent the evasion of this title.
[U.S.C., title 15, sec. 78dd.]
***
Penalties
Sec . 32. (a) Any person who willfully violates
any provision of this title, or any rule or regula
tion thereunder the violation of which is made
unlawful or the observance of which is required
under the terms of this title, or any person who
[U.S.C., title 15, sec. 78cc.]
willfully and knowingly makes, or causes to be
made, any statement in any application, report,
Foreign securities exchanges
or document required to be filed under this title
or any rule or regulation thereunder or any
Sec. 30. (a) It shall be unlawful for any broker
or dealer, directly or indirectly, to make use of undertaking contained in a registration statement
the mails or of any means or instrumentality of as provided in subsection (d) of section 15 of this
interstate commerce for the purpose of effecting title or by any self-regulatory organization in
on an exchange not within or subject to the juris connection with an application for membership
diction of the United States, any transaction in or participation therein or to become associated
any security the issuer of which is a resident of, with a member thereof, which statement was false
or is organized under the laws of, or has its prin or misleading with respect to any material fact,
cipal place of business in, a place within or sub shall upon conviction be fined not more than
ject to the jurisdiction of the United States, in $10,000, or imprisoned not more than five years,
contravention of such rules and regulations as or both, except that when such person is an ex
the Commission may prescribe as necessary or change, a fine not exceeding $500,000 may be
appropriate in the public interest or for the pro imposed; but no person shall be subject to im
tection of investors or to prevent the evasion of prisonment under this section for the violation
of any rule or regulation if he proves that he
this title.
(b) The provisions of this title or of any rule had no knowledge of such rule or regulation.
***
or regulation thereunder shall not apply to any
person insofar as he transacts a business in securi
[U.S.C., title 15, sec. 78ff.]
59
@FedFRASER