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FEDERAL of RESERVE BANK St. L o u is September 28, 1934. REGULATION T To members o f National Securities Exchanges, to brokers and dealers w ho transact business in securities through such m em bers, and to the m em ber banks, in D istrict N o. 8: There is printed on the following pages the Federal Reserve Board’s Regulation T, relating to the extension and maintenance of credit by brokers, dealers and members of National Securities Exchanges. In connection with the issuance of this regulation, the Federal Reserve Board released the follow ing press s ta te m e n t: “The Federal Reserve Board, acting in accordance with the requirements of the Securities Exchange Act of 1934, has prescribed the margins to be required by brokers and dealers from customers borrowing for the purpose of purchasing or carrying securities. “T h e margin requirements which the Board has prescribed are those laid down as a standard in the Act, which gives the Board authority to impose lower or higher margins in accordance with prevailing conditions. Under the standard adopted, a broker or dealer may lend to a customer on many securities as much as 75 per cent of their current market value, while on other securities, in particular on those that have had a rapid rise in value since July 1, 1933, the percentage that may be lent is smaller, but in no case less than 55 per cent. “ Rules prescribed for margin requirements constitute a part of Regulation T issued by the Federal Reserve Board, which also deals with other matters relating to the exten sion or maintenance of credit by brokers, dealers and members of securities exchanges for the purpose of purchasing or carrying securities. Most of the rules in this regulation are for the purpose of preventing the circumvention of the margin requirements, and no restrictions are placed on loans for industrial, agricultural, or commercial purposes. “T he regulation becomes effective October 1, 1934. In order, however, that persons affected might have additional time to familiarize themselves with its provisions, the Securities and Exchange Commission, at the request of the Federal Reserve Board, has made broad use of its powrer to exempt securities from the pertinent sections of the Securi ties Exchange Act. The exemption granted is for the period from October 1 to October 15. “ Regulation T does not prescribe a specific margin that must be maintained after a loan has been granted, but imposes restrictions on the operations which the customer may carry on in his account if his margin falls below the standard prescribed for initial extension of credit. “Under the law the Board has authority to prescribe regulations, including margin requirements, applicable to loans made by banks for the purpose of purchasing or carry ing securities. This authority is additional to other statutes for credit supervision. T he Board is studying the present statute in connection with these other statutes and in due time will issue the required regulation as to bank loans made to purchase or carry securities.” Respectfully, J O H N S. W O O D , Federal R eserve A gen t. Inquiries Regarding these Regulations • It is suggested th a t all inquiries as to these regulations be addressed first to the Securities Ex change of which the persons making the inquiries are members or the facilities of which are used for their transactions. In the event the exchange officials desire infor mation as to such questions, they should make inquiry of the Federal Reserve Agent at the Federal Reserve Bank of their district. In turn, the Federal Reserve Agent may make inquiry of the Board as to any question that needs the Board’s determination. All answers made by the Board to such inquir ies will be distributed to all exchanges through the Federal Reserve Agents. IN D E X R E G U L A T IO N See. 1. Scope and Effective Date of Regulation Sec. 2. Definitions.................... ........... Sec. 3. T ................................ ........................... ... Page .............................. ..... 5 ..................................................................................................... ....................... Margin Requirements............................................. .............................................................................................................................. (a) General r u l e ............................................... ............................................................. ........................ ....... .................................... (h) Extensions of credit to other members, brokers, aiul dealers .................... .............................................. ........ ............ (c) Extension of credit to distributors, syndicates, e t c ........................ .............................................................................. (d) Arbitrage accounts.............................................. .......................................................................................................... ....... (e) Exempted securities................ ......... ....................................................................................... ............................ (f) Adjusted debit balance.. ..................... ..................................... ......................................... ... ....................... (g) Current Market value................................................................................................................ ........... ...................... ............ <h) I .ovvcst market price.......................................................................................................... ......................................................... 5 6 6 6 6 6 6 6 6 7 Sec. 4. Extension and Maintenance of Credit (a) Statutory provision............................................................... (b) General r u l e ..................................................... .......................... ...... (c) Transactions in unrestricted accounts........... .......................... (d) Transactions in restricted accounts.......................................... (e) Time when margin must be obtained....................................... (f) Time when payment or margin is deemed to be received. Sec. 5. Extension or Maintenance of Credit without Collateral or on Collateral other than Exempted or Registered Securities (a) General r u l e ............................................................................... ................................................-................................................. (b) Credit not for purchasing or carrying securities....................................... ....................................................................... (c) Additional collateral for maintenance of existing credits ........... .............................. ................................................ 8 8 8 8 Sec. 6. Cash T ransactions...................................................... .......................................................................................... ............................... 8 Sec. 7. Accounts Existing on October 1, 1934 ................................. ................ .................. ............................................8 (a) Old accounts............................................................. —.....— .................... . ........... ................................- ................. ..........8 (b) New accounts.................................... - ........................................................... ............................................................................... .8 (c) Consolidation of old accounts with new accounts................................................................................. ............................ 8 Sec. 8. Administrative Adjustments and Details........... — (a) Borrowing and lending securities........... - ..... ........................................................................................................................ (b) Interest, commissions, etc............................................................................................................................. —........................ (c) Declaration as to purpose of loan.................................................... ......— ..............................................- ......................... (d) Guaranteed accounts.................................................................................................................................................................... (e) Transfer of accounts.................................................................................... .................................................. - ----------- -------(f) Credit for clearance of securities................ ........................................... ......................................................—..........- ........... (g) Innocent m ista k e s...................................................................... - .............................................................................................. (h) Transactions outside United States.......... ............................................................................................................................ 8 8 8 8 9 9 9 9 9 Sec. 9. 9 Reports..................................................................................... -- - ........................ ............................................................ Sec. 10. Borrowings by Members, Brokers, and Dealers ...................... (a) General r u l e .......................................................................................................................... ....................... (b) Borrowing from nonmember banks....................... ................................................................................................................ (c) Borrowing from other members, brokers, and dealers................................................................ ................................... (d) Emergency loans............................................. .......... ............................................- ..................... ............................................... 9 9 9 9 9 Sec. 11. Qualification of Ncnmember Banks to Lend to Members, Brokers, and Dealers (a) Form of a g re e m e n t.... ...................................... .......................................- .......... (b) Banks in territories or insular possessions; branches of foreign banks. (c) Method and evidence of filing........................................................................... (d) Termination of agreements................................................................................ (e) Forms available....................................................................................................... 9 Sec. 12. Additional Requirements by Exchanges and Creditors APPENDIX — EXCERPTS FROM I A W Miscellaneous Provisions ............................................................................................. Margin Requirements............................................................................ *............ ............ Restrictions on Borrowing by Members, Brokers, and Dealers Validity of Contracts Penalties....................................... .................................................................................... • In order that persons affected by Regulation T of the Federal Reserve Board might have additional time after October 1, 1934, within which to famil iarize themselves with this regulation, the Securities and Exchange Commission has exempted, until midnight of October 14, 1934, from the operation of sections 7 (a), 7(c), 7(d), 8(a) and 12(a) of the Securities Exchange Act of 1934 and all regulations promulgated thereunder, all securities, whether registered or not, except securities as to which the Commission has refused to grant or has denied registration. REGULATION T, SERIES OF 1934 EXTENSION A N D M AINTENANCE OF CREDIT BY BROKERS, DEALERS, A N D MEMBERS OF NATIONAL SECURITIES EXCHANGES SE C T IO N SC O P E A ND E F F E C T IV E necessary or appropriate in the public interest or for the protec tion oi investors; securities which are direct obligations of or obligations guaranteed as to principal or interest by a State or any political subdivision thereof or any agency or mstrumentality of a State or any political subdivision thereof or any municipal corporate instrumentality of one or more States; and such other securities as the Securities and Exchange Commission may, by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for stated periods, exempt from the operation of any one or more provisions of section 7 and/or 8(a) of the Securities Exchange Act of 1934. which by their terms do not apply to an “exempted security" or to “exempted securities.” (g) The term “registered security” means any security which is registered on a national securities exchange, or which, in con sequence of its having unlisted trading privileges on a national securities exchange, must, under the provisions of section 12(f) of the Securities Exchange Act of 1934, be considered a “ security registered on a national securities exchange.” (h) The term “maximum loan value" of a security means the maximum amount of credit which, at any given time, may be extended by any creditor on such security, in conformity with section 3. The “maximum loan value" of the securities in an account, at any given time, is the sum of the ntsaximunt loan values at such time of the individual securities in such account, including securities bought for the account of the customer but not yet debited to his account, but excluding securities sold for the account of the customer for which payment has not vet been credited to his account and excluding contracts for the purchase or sale of unissued securities. (i) The term “unrestricted account" means an account in which at any given time the adjusted debit balance equals or is less than the maximum loan value at such time of the securities in the account: and any account which is an unrestricted account at the beginning of business on anv given day may for the pur poses of this regulation be considered an unrestricted account throughout such day. (j) The term "restricted account” means an account in which, at the beginning of business on any given day, the adjusted debit balance exceeds the maximum loan value at such time of the securities in the account: Provided, however. That, if during the course of a day, as a result of the deposit of cash and/or securities or the sale or substitution of securities by or on behalf of the customer the maximum loan value of the securities in the account becomes equal to or greater than the adjusted debit balance, such account may be deemed an unrestricted account throughout such day. 1. D A T E O F R E G U L A T IO N This regulation is issued pursuant to the requirements of sections 7 and 8(a) of the Securities Exchange Act of 1934 for the purpose of preventing the excessive use of credit for the purchasing or carrying of securities and applies to the extension and maintenance of credit by members of national securities exchanges and by brokers and dealers transacting a business in securities through the medium of such members. This regulation shall not be construed as applying to the extension or maintenance of credit on registered securities for any purpose other than the purpose of purchasing or carrying securities or r f evading or circumventing the provisions of this regulation. This regulation shall become effective on October 1, 1934. Such further regulations as the Board deems necessary or appropriate to carry out the provisions of section 7 and 8(a) of the Securities Exchange A rt of 1934 will be issued from time to time. SE C T IO N 2. D E F IN IT IO N S For the purposes of this regulation — (a) T he terms “person”, “m em ber”, “broker", “dealer", "buy", “purchase", "sale", “sell”, “security”, “equity security”, and “bank" ‘•hall have the meanings given them in section 3(a) of the Securi ties Exchange Act of 1934, which is printed in the appendix to this regulation. (b) T he term "creditor” means any member of a national securities exchange or any broker or dealer who transacts a busi ness in securities through the medium of any such member. (c) The term “account" means any account (.whether a "com bined account” or a “special account” or any other account) representing any financial relationship between any creditor and any customer or any group of customers acting jointly. (d) T h e term “combined account” means the combination of all accounts (except "special accounts") between any creditor and any customer, or any group of customers acting jointly, to or for whom such creditor is extending or maintaining any credit, directly or indirectly, on registered securities (other than exempted securities) for the purpo?e of purchasing or carrying securities. (e) T h e term “special account” means any account recorded separately in conformity with sections 3(b), 3(c), 3(d), 5(h), 6, or 7(a) of this regulation; and. when so recorded, such accounts shall be excluded, for the purposes of this regulation, from all calculations involving “combined accounts." (k) The term “initial extension of credit” means any new extension of credit in an account or any increase ill the amount of credit outstanding in an account. (f) T he term “exempted security" or “exempted securities" shall include securities which are direct obligations of or obliga tions guaranteed as to principal or interest by the United States; such securities issued or guaranteed by corporations in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury as (1) The term “ net withdrawal" means any payment or delivery from an account of money and/or registered and/or exempted securities having an aggregate current market value exceeding that of any money and /o r registered and/or exempted securities paid or delivered into the account on the same day. 5 (m) T he term "custom er” means any person to or for whom, or any group of persons to or for whose joint account, a creditor is extending or maintaining any credit and includes any partner in a firm to whom such firm is extending credit for the purpose of purchasing or carrying securities: Provided, however. That a partner shall not be deemed to be a customer of his firm within the meaning of this regulation with reference to his financial relations to the firm as reflected in his capital and ordinary draw ing account. (e) Exempted securities. - I n an account which contains both exempted securities and registered non-exempted securities, the maximum loan value of an exempted security shall be regarded as not more than the current market value of such security: Provided, however. That nothing in this regulation shall be con strued as preventing any exchange or any creditor from requiring margin on, or assigning lower loan values to, exempted securities. (!) Adjusted debit balance. For the purpose of this regu lation. the adjusted debit balance of an account shall be calculated by taking the sum of the following items: S E C T I O N 3. M A R G IN R E Q U I R E M E N T S (1) The net debit balance, if any, of the account; (2) Any amount to be paid for securities (other than (a) General rule. — Xo creditor shall make any initial exten unissued securities) bought for the account of the custom sion of credit to any customer on any registered security (other er but not yet debited to his account: than an exempted security) for the purpose of purchasing or (.?) The current market value of any securities sold carrying any security, in an amount which causes the total credit short in the account (other than unissued securities) extended on such registered security to exceed the maximum plus the margin customarily required by the creditor loan value of such registered security. Except as specifically provided elsewhere in this section, the maximum loan value of on such short commitments; any registered security (other than an exempted security) shall (4) The amount of any margin customarily required be whichever is the higher of: by the creditor on every future commitment in unissued securities, in commodities, or in foreign exchange, and/or (1) 53 percent of the current market value of the in connection with the creditor’s endorsement or guaranty security; or of any put, call or other option, plus any unrealized loss (2) 100 percent of the lowest market value of the on each such commitment a n d/or minus any unrealized security computed at the lowest market price therefor gain on each such commitment not exceeding the margin during the period of thirty-six calendar months imme thereon; and diately prior to the first day of the current month, but (5) In the case of a guarantor's account, the aggre not more than 75 percent of the current market value: Provided, That until July 1. 1936. for the purpose of this gate of the amounts required to make each account guar regulation, the lowest price at which a security has sold anteed by such guarantor an unrestricted account: P r o on or after July 1, 1933, but prior to the first day of the vided, T hat in the case of no such guaranteed account current month, shall be considered as the lowest market shall the amount exceed that to which the guaranty is price of such security during the preceding thirty-six cal limited; endar months; and Provided,That the lowest market price and deducting therefrom the sum of the following items: which could be used under the provisions of this regula (6) The net credit balance, if any, of the account; tion during any calendar month may be used during the (7) Any amount to be received for securities (other first seven calendar days of the succeeding calendar than unissued securities) sold for the account of the month. customer but for which payment has not yet been (b) Extensions of credit to other members, brokers, and credited to his account; and dealers. — In a special account recorded separately, any creditor (8) Any amount needed but not yet received by the may extend credit on any registered security to any other mem creditor to provide any margin required by this regula ber, broker, or dealer in an amount not greater than the maximum tion: Provided, That (1) a demand for such margin shall loan value of such security, which shall be (except in the case have been made in, or confirmed by, a letter or telegram of an exempted security) 80 percent of the current market value which the creditor shall have sent to the customer at his of such security: Provided, T hat (1) such other member, broker, last known address and (2) the time within which the or dealer is subject to the provisions of this regulation or has creditor is required by this regulation to obtain such places of business only in foreign countries, (2) such credit is margin has not expired. extended or maintained solely for the purpose of enabling such member, broker, or dealer to carry accounts for his customers For the purposes of this regulation, the adjusted debit balance other than his partners, and (3) any credit extended or maintained of every account in which any credit is extended or maintained by such creditor to or for such other member, broker, or dealer for the purpose of purchasing or carrying securities shall be com for the purpose of purchasing or carrying securities for his own puted in accordance with the above rules, regardless of whether account or for the account of his firm or any of his partners it be combined account or a special account. In case a customer shall not be included in such special account and shall be subject has more than one account (other than special accounts) with a to the other provisions of this section. creditor, his adjusted debit balance and the maximum loan value of the securities in his account shall be calculated, for the purposes (c) Extension of credit to distributors, syndicates, etc. — In a of this regulation, on the basis of his combined account, taking special account recorded separately, any creditor may extend into consideration all accounts between such customer and such credit on any registered security in an amount not greater than creditor except special accounts. In computing the adjusted debit the maximum loan value thereof, which shall be (except in the balance of each special account, there shall be taken into consider case of an exempted security) 80 percent of the current market ation only the items involved in that particular account. value of such security: (1) to any dealer, for the purpose of financing the distribution of an issue of securities at wholesale (g) Current market value. — For the purpose of ascertaining or retail; or (2) to any group, joint account or syndicate for the the current market value of a security at the time of and in con purpose of underwriting or distributing an issue of securities. nection with a purchase or sale of such security, the price at which such security is purchased or sold (whether or not as part (d) Arbitrage accounts.— If such transactions are recorded of a substitution of securities or other transaction), shall be used separately in a special account and are not used for the purpose in computing the current market value of such security within of evading or circumventing the provisions of this regulation, the meaning of this regulation. any bona fide arbitrage transactions in securities and any credit extended or maintained to or for a customer for the purpose of For the purpose of ascertaining the current market value of financing such transactions shall be exempt from the other pro any security in an account, at any time other than the time of its visions of this regulation: Provided, That the customer shall purchase or sale, the creditor shall have the option of using as the maintain a margin equal to 2 percent of any net debit balance price of such security either the closing sale or the closing bid in such account, unless the account contains no securities except price for such security on the preceding business day, as shown exempted securities. by any regularly published reporting or quotation service used by 6 such creditor (cxccpt that such bid price shall not be deemed to be the current market value of a security sold short). In the absence of any such closing sale pricc, the creditor shall have the option of using either any such bid pricc on such preceding business day (except that such bid price shall not be deemed to be the current market pricc of a security sold short), or the price at which the last saie was recorded, if such sale occurred during the current or preceding calendar month, as shown by any regularly published reporting or quotation service used by uch creditor. In the event that none of the prices above described is available, the creditor may use any reasonable estimate of the market price of such security. successive business days, may be considered for the purposes of this section as a single transaction occurring on the day on which the purchase occurs. (c) Time when margin must be obtained. — W henever the creditor is required to demand additional margin in order to com ply with this regulation, he shall demand the required amount of margin as promptly as possible and shali obtain such margin as promptly as possible in view of the established usages of the trade and the circumstances of the case and in ail events before the expiration of three full business days (exclusive of Saturdays, Sundays and holidays) from the date of the purchase or other transaction on account of which such margin is required, unless, (h) Lowest market price. — T he lowest market pricc of within a such time such account is brought into conformity with registered security during a specified time means the lowest price this regulation by some other method: Provided, That, in excep at which such security has sold during such time on the national tional cases, any regularly constituted committee of a national securities exchanges on which it is or has been registered (includ securities exchange having jurisdiction over the business conduct of its members, of which exchange the creditor is a member or ing such exchanges during that part of the specified time which preceded their respective registrations as national securities through which his transactions are effected, may grant a further exchanges under the Securities Exchange Act of 1934): Provided, extension of time, not exceeding ten days, on application of the creditor, if such committee is satisfied that the creditor is acting That, if such security is a stock upon which there has been any in good faith and that the circumstances warrant such action: stock dividend amounting to more than 10 percent in any one Provided, however, That, ii the account be a restricted account, calendar year, or any reduction or increase in the number of shares (1) in the case of a withdrawal of cash, the necessary amount by calling in the outstanding shares and issuing in substitution of securities must be deposited on the same day; (2) in the case therefor a smaller or larger number of shares, any prices estab of a withdrawal of securities, the necessary amount of cash must lished before such dividend or change in number of shares shall be be deposited on the same day; and (3) in the case of a substitution adjusted therefor. A creditor using a figure published as such of securities (not involving a sale of securities in the account lowest market price in any record published or approved by any and the purchase of other securities), the securities substituted national securities exchange may rely on such figure for the must be deposited on the same day that the securities for which purposes of this regulation. they are substituted are withdrawn, S E C T I O N 4. E X T E N S I O N AND M A I N T E N A N C E O F C R E D I T (a) Statutory provision. — Under the provisions of subsec tion (.c) of section 7 of the Securities Exchange Act of 1934, it is unlawful for any member of a national securities exchange or any broker or dealer who transacts a business in securities through the medium of any such member, directly or indirectly to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer on any registered security (other than an exempted security) in contravention of the regulations of the Federal Reserve Board. (b) General rule. — A creditor may permit credit to be main tained in any account in accordance with tha provisions of this section, regardless of reductions in the customer's equity resulting from changes in market prices a nd /o r from charges to the account of the customer permitted under section 8(b) ot this regulation. (f) Time when payment or margin is deemed to be re ceived.— For the purposes of this regulation, any creditor who shall in good faith accept any check or draft drawn on a bank which in the ordinary course of business is payable on presenta tion or any order on a savings account with passbook attached, shall be deemed to have received payment of the amount of such check, draft, or order within the meaning of this regulation at the time such check, draft, or order is received; and any credi tor who shall in good faith ship securities with sight draft attached shall be deemed to have received payment of the amount of such sight draft at the time of the shipment of the securities to which such sight draft is attached: Provided, That, if such check, draft, order, or sight draft is not paid on the day of pre sentation, the creditor shall, before the expiration of three full business days from the receipt of notice of such nonpayment, obtain actual payment, cancel the sale, resell the securities for the account of the customer, or obtain the deposit of additional securities having a loan value sufficient to provide the margin needed. Any member, broker, or dealer who shall receive payment of any amount in any foreign currency capable of being converted without restriction into United States currency, shall be deemed, (c) Transactions in unrestricted accounts. — A creditor shall for the purposes of this regulation, to have received payment of not permit any customer to make in an unrestricted account any an amount equal to the value of the foreign currency so paid, transaction or combination of transactions which would cause computed at the buying rate for cable transfers of such foreign such account to become a restricted account, unless he demands, currency on the preceding business day as determined and certi in accordance with subsection 4(e) of this regulation, additional fied by the Federal Reserve Bank of New York and published margin in an amount sufficient to make such account an unre by the Secretary of the Treasury pursuant to the provisions of Section 522 of Title 4 of the Tariff Act of 1930. Any person who stricted account. shall deposit with a creditor any such foreign currency may, for the purpose of determining the adjusted debit balance in an (d) Transactions in restricted accounts. — A creditor shallaccount of such person, be credited with the value of such foreign not permit a customer to make in a restricted account any trans currency compiled as hereinabove prescribed. action which, in combination with any other transactions made on the same day and together with demands for additional margin In the case of any special account which grows out of regular in connection therewith, results in any increase of the excess of correspondent relationships between a creditor and a customer the adjusted debit balance of the account over the maximum loan who is not located in the same city and who is a member, broker, value of the securities in the account, or results in any net with or dealer, securities which are in transit from such customer to drawal of cash and /o r securities: Provided, however, That the creditor for the purpose of increasing the customer's margin a creditor may permit a customer to make any transaction or may, tor the purposes of this regulation, be deemed to have been combination of transactions which causes the account to become received by the creditor at the time he receives and accepts in an unrestricted account: and Provided, I hat any substitution ot good faith a telegram or letter from the customer stating that securities consisting of a sale of securities in the account and the such securities have been shipped to the creditor. purchase of other securities, if completed within a period ot two S E C T I O N 5. E X T E N S IO N OR M A IN T E N A N C E OF C R E D IT W IT H O U T C O L L A T E R A L OR O N C O L L A T E R A L O T H E R TH A N E X E M P T E D OR R E G IS T E R E D S E C U R IT IE S (a) General rule. — Under the provisions of subsection of section 7 01 the Securities Exchange Act of 1934. it is unlawful for any member of a national securities exchange or any broker or dealer who transacts a business in securities through the medi um of any such member, directly or indirectly to extend or main tain credit or arrange for the extension or maintenance of credit to or for any customer without collateral or on any collateral other than exempted and/or registered securities except as ex pressly permitted by this regulation. ( b ) Credit not for purchasing or carrying securities. In a special account recorded separately, a creditor may, notwithstand ing any other provision ot this regulation, extend credit to any customer, without collateral or on any collateral other than non-exemptcd registered securities, for any bona fide commercial, industrial, or other purpose except the purpose of purchasing nr carrying securities or of evading or circumventing the provi sions of this regulation. S E C T I O N 7. A C C O U N T S E X I S T I N G O N O C T O B E R 1, 1934 (a) Old accounts. - A creditor may designate any account maintained by him at the opening of business on October 1, 1934, . - an old account by making an appropriate entry in the record of such account prior to November 15, 1934. and such creditor (c)may carry such account separately as a special account and main tain credit and permit transactions therein: Provided, That, in order to prevent the circumvention of this regulation, such trans action'; and the maintenance of such credit shall be subject to the provisions of section 4 of this regulation: Provided, 1 hat the creditor shall not at any time permit the customer to make any transaction or combination of transactions in such old account which would increase the adjusted debit balance of such account above the amount existing at the time such transaction or comI inatioti of transactions is instituted: Provided, however, That, if such account is an unrestricted account on October 15, 1934, the creditor, at any time prior to November 15, 1934, may permit the customer to withdraw therefrom such amount of money and/or securities as will not make such account a restricted account. Any account not o designated as an old account prior to November 15. 1".'4, should be subject to all the provisions of this regulation. ib) New accounts. — Notwithstanding any other provision of thi regulation, a creditor may at any time permit a customer having an old account, recorded separately as above provided, to establish and maintain one or more new accounts which new . ecounts shall be subject to alt the applicable provisions of this r filiation, except that they shall not be affected by the status of, or transactions in. the old account. (c) Additional collateral for maintenance of existing credits. As security for the maintenance of credits initially extended prior to October 1, 1934, or extended in conformity with this regulation, for the purpose of purchasing or carrying securities, a creditor may until July 1, 1937, accept or retain as collateral, in addition to exempted securities and registered securities, any collateral whatsoever: Provided, T hat collateral other than exempted or registered securities (1) shall not be tbe basis of any additional extension of credit, and (2) shall be given no value in determining the maximum loan value of the securities in the account. S E C T IO N 6. tc) Consolidation of old accounts with new accounts. — At any time prior to July 1. 1937, a creditor may permit or require any customer to consolidate his old account with any of his new . ecount and thereafter the consolidated account shall be con sidered a new account within the meaning of this regulation: Provided, That all such accounts shall be consolidated, liquidated, or otherwise disposed of on or before July 1, 1937. CASH T R A N S A C T IO N S S E C T IO N 8. Notwithstanding any other provision of this regulation, a creditor may, subject to the conditions specified in this section, make extensions of credit for limited periods not exceeding seven days and effect other transactions which ar.* incidental to bona tide cash transactions. A D M IN IST R A T IV E A D JU ST M E N T S AND ; a ) Borrowing and lending securities. — Neither the bona fide d tjosit o i cash, in order to borrow securities for the purpose of m iking delivery of such securities in the case of short sales, d l y e d deliveries, and other similar transactions, nor the bona fide lending of securities for such purposes shall be considered an extension or maintenance of credit within the meaning of this regulation. ib) Interest, commissions, etc.- Interest on credit maintained in an account, commissions on transactions in an account, sale or transfer taxes on transactions in nn account, premiums on securi ties borrowed in connection with short sales or to effect delivery, dividends, interest, rights or other distributions due on borrowed securities, and any service charges which the creditor may impose, may be debited to such account in accordance with the usual prac tice and shall be taken into consideration in calculating the net balance of such account; but the debiting of any such item to an account shall not !»■ considered a violation of this regulation, whether nr not such account is a restricted account and whether <ir not the d,biting of such item causes an unrestricted account to become restricted account. A bona fide cash transaction is one in which a creditor stlls a security to a customer or purchases a security for a customer upon an agreement made in good fa>th. and not to evade or cir cumvent the provisions of this regulation, that the customer will promptly make full cash payment for the security so sold or purchased. I'.very creditor shall record separately in a special account all such bona fide cash transactions in connection with viiich he extends credit and shall record the full d tails of each such ea-h transaction, including the name and address of the customer, a description of the security involved, and tbe terms and date of sale and the date and manner of payment. No extension of credit which is incidental to any such bona fide cash transaction shall constitute a violation of this regulation, »1 > if payment for such securities is actually received, or the credit <. Is deemed to have received payment for the purpose of this regula tion. at or within the time speeifi-d above, or (2) if the creditor cancels the ^alc or res 11s the securities for thi account of t! customer within t',-o da vs after the time when p:> m.r.t should ’ ave been rt eived under this subsection: Provided, however. That, in exceptional casei, at-.v regularly constituted eonvr. f - e of a national securities exchange bavin*? jurisdiction over the business conduct of it« members, of which exchange the creditor is a member or through which his transactions are effected. may. on application of the creditor, ^rant a further ext* "fion of •e not exceeding thirty-five days or authorize the creditor to extend credit on such security subject to the provisions of this reputation, it such committee is satisfied that the creditor is actin ' in good faith and that the circumstances w arrant such action. D E T A IL S ict Dcclsrrticn as to purpose of loan. — Every extension of ertd.it on a registerrd security (other than an exempted security) hall Sc deemed for the purposes of this regulation to he for the iiuri ose of purchasing or carrying securities, unless the customer s h a ll file with the creditor a written declaration signed by the cnstoi >.*r which shall state the use to be made of such credit and which -!i:.ll state specifically that such credit is not for the purpose of pureha. ing or carrying s curities or of evading or eircunm nting the provisions of this regulation. In any case in which a creditor i^ required to comply with the provisions of t':i< regulation if an extension of credit is for the purpose of 8 purchasing or carrying securities, he may rely upon a written declaration of the customer such as that required above, unless lie knows the statement to be false or has information which would put a prudent man upon inquiry and if investigated with reasonable diligence would lead to the discovery of the falsity of the statement. (d) Guaranteed accounts. — Notwithstanding the definitions of the terms “unrestricted account" and ‘‘restricted account," a Creditor may regard as an unrcstrictcd account any account which is guaranteed in writing for an amount sufficient to make such account an unrcstrictcd account by a person who has an account with such creditor containing securities of sufficient loan value to make such guaranteed account an unrestricted account in addition to providing the margin required by this regulation on the guarantor’s account. (3) To the extent to which, under the provisions of this regulation, the Federal Reserve Board permits loans between such members an d/or brokers and /o r dealers, or to meet emergency needs, (b) Borrowing from nonmember banks. — Each nonmcmbcr bank which has filed an agreement in the form prescribed by tins regulation will be given a certificate evidencing that fact. Interested persons may obtain from the Federal Reserve Agent at any Federal Reserve Bank the names of banks which have filed such agreements and information as to whether in each case the agreement is still in force. (c) Borrowing from other members, brokers, and dealers.— A creditor may borrow front 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 regulation and subject to such rules and regulations as the Securi ties and Exchange Commission may prescribe under the provi sions of section 8(c) of the Sccuritics Exchange Act of 1934. (e) Transfer of accounts.— In the event of the transfer of an account from one creditor to another, such account may be treated for the purposes of this regulation as if it bad been main tained by the transferee from the date of its origin. (f) Credit for clearance of securities. — The extension or maintenance of any credit which is maintained for only a fraction of a day (that is, for only a part of the time between the begin ning of business and midnight on the same day) shall be disre garded for the purposes of this regulation, if it is incidental to the clearance of transactions in securities directly between mem bers or through an agency, organized or employed by the mem bers of a national securities exchange for the purpose of effecting such clearances. (g) Innocent mistakes. — If any failure to comply with this regulation results from an innocent mistake made in good faith in executing a transaction, recording, determining, or calculating any loan, balancc, market price, loan value, or other administra tive adjustment or detail, the creditor shall not be deemed guilty of a violation of this regulation: Provided, That (1) the mistake is corrected promptly, (2) any additional margin required is obtained within the time allowed by this regulation from the date of the discovery of the mistake. (d) Emergency loans.— Notwithstanding any other provision of this regulation, any member of a national securities exchange, or any group of such members, may, with the approval of any regularly constituted committee of a national securities exchange having jurisdiction over the business conduct of such members, make loans to meet the emergency needs of any other such mem ber or of a broker or dealer transacting business through the medium of any such member; and ail such loans, whether made prior or subsequent to the effective date of this regulation, may be maintained, renewed, a n d /o r extended until the Federal Reserve Board shall determine that the emergency justifying such loan has ceased to exist: Provided, T hat any such committee approving the making, renewal, or extension of any such loan, made after the effective date of this regulation, shall, within 10 days, make a written report of all facts relative thereto to the Federal Reserve Agent of the district in which such exchange is located. Any member of a national securities exchange and rny broker or dealer who transacts a business in securities through the medium of any such member may borrow in accor dance with the provisions of this section for the purpose of meeting his emergency needs. (h) Transactions outside United S ta te s.— In view of the provisions of Section 30(b) of the Securities Exchange Act of 1934, nothing in this regulation shall apply to any creditor insofar as he transacts a business in securities without the jurisdiction of the United States, unless he transacts such business in contra vention of such rules and regulations as the Securities and Ex change Commission may prescribe as necessary or appropriate to prevent the evasion of the Securities Exchange Act of 1934. S E C T I O N 9. REPORTS Every member of a national securities exchange and every broker or dealer who transacts a business in securities through the medium of any such member, shall, in the manner and form to be prescribed by the Federal Reserve Board, make such peri odic, special, and /o r other reports as the Federal Reserve Board may require from time to time. S E C T IO N 10. B O R R O W IN G S BY M E M B E R S. B R O K E R S , AND DEALERS (a) General rule. — Under the provisions of section 8 of Securities Exchange Act of 1934 it is unlawful for any member of a national securities exchange, or any broker or dealer who trans acts a business in securities through the medium nf such member, directlv or indirectly to borrow in the ordinary course of business as a broker or dealer on any registered security (other than an exempted security) except: (1) From or through a member bank of the Federal Reserve Sj’stem; or (2) From any nonmember bank which shall have filed with the Federal Reserve Board an agreement which is still in force and which is in the form prescribed by this regulation; or S E C T I O N 11. Q U A L IF IC A T IO N O F N O N M E M B E R B A N K S T O L E N D T O M E M B E R S, B R O K E R S , A N D D E A L E R S (a) Form of agreement. — In order to qualify, pursuant to the provisions of subsection (a) of section 8 of the Securities Exchange Act of 1934, as a bank from which it is lawful for any member of a national sccuritics exchange or any broker or dealer who transacts a business in securities through the medium of any such member, to borrow, in the ordinary course of business ; s a broker or dealer, on registered securities (other than exempted securities), a bank which is not a member of the Fed eral Reserve System and which is not included in the classes of banks referred to in subsection (b) of this section, shall file, in the manner hereinafter prescribed, an agreement on F. R. B. Form T -l. which form is hereby made a part of this regulation. theThe execution of such agreement shall be authorized by the adop tion by the Board of Directors or other governing body of the bank of a resolution in the form contained in F. R. B. Form T -l and the agreement when filed shall be accompanied by a copy of such resolution certified by the Secretary nr nther duly authorized officer of the bank in the manner provided for in F. R. B. Form T-l. (b) Banks in territories or insular possessions: branches of foreign banks. — In order to qualify, pursuant to the provisions of subsection (a) of section 8 of the Securities Exchange Act of 1934, a bank which is not a member of the Federal Reserve Sys tem and which has its principal place of business in a territory or insular possession of the United States (including the Philip pine Islands anil the Canal Zone) or which is not a member of 9 the Federai Reserve System anrl which has its principal place of business in a foreign country and has a branch or agency in the United States, shall file in lieu of the agreement on F . R. B. Form T -l an agreement on F. R. B. Form T-2. which form is hereby made a part of this regulation. Such agreement when filed shall be accompanied by proof of the authorization of its execution in the manner provided on F. R. B. Form T-2. (c) Method and evidence of filing. — Duplicate originals of F. R. B. Form T -l, when properly executed, shall be delivered to the Federal Reserve Agent at the Federal Reserve Bank of the district in which is situated the qualifying bank’s principal place of business and such delivery shall constitute filing with the Federal Reserve Board. A certificate evidencing such filing will thereupon be delivered to the qualifying bank by the Federal Reserve Agent. Duplicate originals of F. R. B. Form T-2. when properly rxecuted. shall be delivered to the Federal Reserve Agent at the Federal Reserve Bank of New York or the Federal Reserve Agent at the Federal Reserve Bank of San Francisco and delivery to u t h e r such Federal Reserve Agent shall constitute filing with the Federal Reserve Board. The Federal Reserve Agent to whom such delivery is made shall thereupon send a certificate evidencing such filing to the qualifying hank and to each branch or agency of the qualifying hank which is listed in F. R. B. Form T-2 and shall at the same time send appropriate notice of such filing to the Federal Reserve Agent at the Federal Reserve Bank in each Federal Reserve District in which is situated one or more of such branches or agencies. (d ) Termination of agreements. — Any agreement on F. R. B. Form T - l or F. R. B. Form T-2 filed with the Federal Reserve Board shall be subject to termination at any time by order of the Board, after appropriate notice and opportunity for hearing, because of any failure by the bank filing such agreement to com ply with the provisions thereof or with the provisions of the Securities Exchange Act of 1934. the Federal Reserve Act, as amended, or the Banking Act of 1933, which arc applicable to member banks and which relate to the use of credit to finance transactions in sccuritics, or with such rules and regulations as may be prescribed pursuant to such provisions of law or for the purpose of preventing evasions thereof. For any willful violation of such agreement, the offending hank will be subject to the penal ties prescribed by the Securities Exchange Act of 1934 for viola tions of rules and regulations prescribed thereunder. (e) Forms available. — Copies of F. R. B. Form T - l and F. R. B. Form T-2 may be obtained from the Federal Reserve Agents at the Federal Reserve Banks. S E C T I O N 12. A D D I T I O N A L R E Q U I R E M E N T S BY E X C H A N G E S AND C R E D I T O R S Nothing in this regulation shall be construed as preventing an exchange from adopting and enforcing any rule or regulation requiring its members to secure or maintain higher margins or otherwise restricting the amount of credit which may be extended by such members. Nothing in this regulation shall be construed as modifying the right of any creditor to require additional security for the maintenance of any credit or as restricting the right of any credi tor to refuse to extend credit or to sell any securities or property held as collateral for any loan or credit extended by him. A PP E N D IX T h e re arc printed below certain provisions of th e Securities E xchange A c t of 1934 w hich are pertinent to the subject m a tte r of this regulation. Sec. 3(a). (3) T he term “member” when used with respect to an exchange means any person who is per mitted either to effect transactions on the exchange without the services of another person acting as broker, or to make use of the facilities of an exchange for trans actions thereon without payment of a commission or fee or with the payment of a commission or fee which is less than that charged the general public, and includes any firm transacting a business as broker or dealer of which a member is a partner, and any partner oi any such firm. (4) The term “broker" means any person engaged in the business of effecting transactions in securities tor the account of others, but docs not include a bank. (5) The term "dealer” means any person engaged in the business of buying and selling securities 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 regu lar business. (6) The term “bank" means (A) a banking institu tion organized under the laws of the United States, (B ) a member bank of the Federal Reserve 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 consists 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 operated 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. (9) The term "person” means an individual, a cor poration, a partnership, an association, a joint-stock com pany, a business trust, or an unincorporated organization. (10) The term "security” means any note, stock, treas ury stock, bond, debenture, certificate of interest or parti cipation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust cer tificate, 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, exclu sive 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 convertible, with or without consideration, into such a security, or carrying any w arrant or right to subscribe 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 nccessary 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. (13) The terms "buy" and “purchase” each include any contract to buy, purchase, or otherwise acquire. (14) T he terms "sale” and "sell” each include any contract to sell or otherwise dispose of. 10 (b) The Commission and the Federal Reserve Board, as to matters within their respective jurisdictions, shall have power by rules and regulations to define tech nical, trade, and accounting terms used in this title insofar as such definitions are not inconsistent with the provi sions of this title. Sec. 6(b). No registration shall be granted or remain in force unless the rules of the exchange include provision for the expulsion, suspension, or disciplining of a member for conduct or proceeding inconsistent with just and equitable principles of trade, and dcclare that the will fat violation of any provisions of this title or any rule or regulation thereunder shall he considered conduct or proceeding inconsistent with just and equitable principles of trade. (c). Nothing in this title shall be construed to pre vent any exchange from adopting and enforcing any rule not inconsistent with this title and the rules and regula tions thereunder and the applicable laws of the State in which it is located. (1) On any security (other than an exempted security) registered on a national securities ex change, in contravention of the rule* and regula tions which the Federal Reserve Board shall pre scribe under subsections (a) and (b) of this sec tion. (2) W ithout collateral or on any collateral other than exempted securities a n d/or securities registered upon a national securities exchange, except in accordance with such rules and regu lations as the Federal Reserve Board may pre scribe (A) to permit under specified conditions and for a limited period any such member, brok er, or dealer to maintain a credit initially ex tended in conformity with the rules and regula tions of the Federal Reserve Board, and (B) to permit the extension or maintenance 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 circumvent ing the provisions of paragraph (1) of this sub section. MARGIN REQUIREMENTS See. 7(a). For the purpose of preventing the exces sive use of credit for the purchase or carrying of securi ties, the Federal Reserve Board shall, prior to the effec tive date of this section and from time to time thereafter, prescribe rules and regulations with respect to the amount of credit that may be initially extended and sub sequently maintained on any security (other than an exempted security) registered on a national securities exchange. For the initial extension of credit, such rules and regulations shall be based upon the following stan dard: 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 of the security during the preceding thirtysix calendar months, but not more than 75 per centum of the current market price. Such rules and regulations may make appropriate provision with respect to the carrying of undermargined accounts for limited periods and under specified condi tions; the withdrawal of funds or securities; the substi tution or additional purchases of securities; the transfer of accounts from one lender to another; special or differ ent margin requirements for delayed deliveries, short sales, arbitrage transactions, and securities to which para graph (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 details. For the purposes of paragraph (2) of this subsection, until July 1, 1936, the lowest price a t 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 thirty-six calendar *nonths. (b) Notwithstanding the provisions of subsection ^a) of this section, the Federal Reserve Board, may, from time to time, with respect to all or specified securities or transactions, or classes of securities, or classes of trans actions. by such rules and regulations (1) prescribe such lower margin requirements for the initial extension or maintenance of credit as it deems necessary or appro priate for the accommodation of commerce and industry, having due regard to the general credit situation of the country, and (2) prescribe such higher margin require ments for the initial extension or maintenance of credit it m a r 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 who transacts a business in securities through the medium of any such member, directly or indirectly to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer — (d) It shall be unlawful for any person not subject to subsection (c) to extend or maintain credit or to arrange for the extension or maintenance of credit for the purpose of purchasing or carrying any security registered on a national securities exchange, in contraven tion of such rules and regulations as the Federal Reserve Board shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention 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 registered on national securities ex changes limitations similar to those imposed upon mem bers, brokers, or dealers by subsection (c) of this section and the rules and regulations thereunder. This sub section 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 national 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 Federal Reserve Board shall, by such rules and regulations as it may deem neces sary or appropriate in the public interest or fo r the pro tection of investors, exempt, either unconditionally or upon specified terms and conditions or for stated periods, from the operation of this subsection and the rules and regulations thereunder. (e) The provisions of this section or the rules and regulations thereunder shall not apply on or before July 1, 1937, to any loan or extension of credit made prior to the enactment of this title or to the maintenance, renewal, or extension of any such loan or credit, except to the extent that the Federal Reserve Board may by rules and regulations prescribe as necessary to prevent the circum vention of the provisions of this section or the rules and regulations thereunder by means of withdrawals of funds or securities, substitutions of securities, or additional purchases or by any other device. RESTRICTIONS ON BORROWING BY MEMBERS, BROKERS, AND DEALERS Sec. 8. It shall be unlawful for any member of a national securities exchange, or any broker or dealer who transacts a business in securities through the medium of any such member, directly or indirectly — 11 (a) T o borrow in the ordinary course of business as a broker or dealer on any security (other than an exempted security) registered on a national securities exchange except (1) from or through a mem ber bank of the Federal Reserve System, (2) from any nonmcmbcr bank which shall have filed with the Federal Reserve Board an agreement, which is still in force and which is in the form prescribed by the Board, undertaking to comply with all provisions of this Act, the Federal Reserve Act, as amended, and the Bank ing Act of 1933, which arc applicable to member banks and which relate to the use of credit to finance transactions in securities, and with such rules and regulations as may be prescribed pur suant to such provisions of law or for the purpose of preventing evasions thereof, or (3) in accor dance with such rules and regulations as the Federal Reserve Board may prescribe to permit loans between such members and/or brokers and /o r dealers, or to permit loans to meet emer gency needs. Any such agreement filed with the Federal Reserve Board shall be subject to termi nation at any time by order of the Board, after appropriate notice and opportunity for hearing, because of any failure by such bank to comply with the provisions thereof or with such provi sions of law or rules or regulations; and, for any willful violation of such agreement, such bank shall be subject to the penalties provided for vio lations of rules and regulations prescribed under this title. The provisions of sections 21 and 25 of this title shall apply in the case of any such pro ceeding or order of the Federal Reserve Board in the same manner as such provisions apply in the case of proceedings and orders of the Com mission. (b) To permit in the ordinary course of business as a broker his aggregate indebtedness to all other persons, including customers’ credit balances (but excluding indebtedness secured by exempted securities), to exceed such percentage of the net capital (exclusive of fixed assets and value of exchange membership) employed in the business, but not exceeding in any case 2,000 per centum, as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. (c) In contravention of such rules and regu lations as the Commission shall prescribe for the protection o i investors to hypothecate or arrange for the hypothecation of any securities carried for the account of any customer under circum stances (1) that will permit the commingling of his securities without his written consent with the securities of any other customer, (2) that will permit such securities to be commingled with the securities of any person other than a bona fide customer, or (3) that will permit such securities to be hypothecated, or subjected to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers in respect of such securities. (d) T o lend or arrange for the lending of any securities carried for the account of any cus tomer without the written consent of such cus tomer. Sec. 17(b). Any broker, dealer, or other person ex tending credit who is subject to th t rules and regulations prescribed by the Federal Reserve Board pursuant to this title shall make such reports to the Board as it may require as necessary or appropriate to enable it to per form 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 neces sary, 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. Sec. 23(a). The Commission and the Federal Reserve Board shall each have power to make such rules and regulations as may be necessary tor the execution of the functions vested in them by this title, and may for such purpose classify issuers, securities, exchanges, and other persons or matters within their respective juris dictions. V A L ID IT Y OF CONTRACTS Sec. 29(a). Any condition, stipulation, or provision binding any person to waive compliance with any pro vision of this title or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void. (b). Every contract made in violation of any pro vision of this title or of any rule or regulation there under, and every contract (including any contract for listing a security on an exchange) heretofore or here after made the performance of which involves the viola tion of, or the continuance of any relationship or prac tice in violation of, any provision of this title or any rule or regulation thereunder, shall be void (1) as regards the rights of any person who. in violation of any such provision, rule, oi 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 knowledge of the facts by reason of which the making or performance of such contract was in viola tion 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 extension of crcdit (or extension or renewal thereof) or acquiring such lien shall have actual knowl edge of facts by reason of which the making of such loan or extension of credit (or extension or renewal thereof) or the acquisition of such lien is a violation of the provisions of this title or any rule or regulation there under, 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 affccting the legality of such debt, obligation, or lien. PE N A L T IE S Sec. 32. Any person who willfully violates any provi sion of this title, or any rule or regulation 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 willfully and know’ingly makes, or causes to be made, any statement in any application, report, or document required to be filed under this title or any rule or regulation thereunder, which statement was false or misleading with respect to anv l&iterial fact, shall upon conviction be fined not n t h a n 510,000, or im prisoned not more than twq-v^aVs, or both, except that when such person is an Mdiringe, a fine not exceeding $500,000 may be impos«<&rDut ho person shall be subject to imprisonment under tbr$v section for th^<violation of any rule or regulatiomii he proves that he Ijad no knowl edge of such rule opv^gulation. Q
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