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1.04117 A meeting of the Board of Governors of the Federal Reserve sYst Ivas held in Washington on Wednesday, July 28, 1937, at 11:45 ra . PRESFET: Mr. Mr. Mx. Mx. Mx. Mr. Eccles, Chairman Ransom, Vice Chairman Broderick Szymczak McKee Davis Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman Consideration was given to each of the matters hereinafter reretire.? to and the action stated with respect thereto was taken by the toE,ra: The oral. R O minutes of the meeting of the Board of Governors of the Fed- .' 6.rve System held on July 27, 1937, were approved unanimously. Letter to Mr. McLarin, Vice President of the Federal Reserve 41112Lk °.t Atlanta, stating that the Board approves the changes in the .13e1(11111e1 cla ssification plan of the bank, as requested in his letter 221 to provide for increaEes in the maximum salaries for the itions of File Clerk-A from'd1,560 to 1,620, and for File Clerk-B to41,320 per annum. Approved unanimously. Letter to Mr. Young, Vice President of the Federal Reserve Bank eo, reeding as follows: ta7!le report of examination of the 'G. W. Jones Exchange 'Marcellus, Michigan, as of May 29, 1937, shows that te bank is exercising trust powers to the extent of adminis- 1048 7/28/37 - "t erin one guardianship with total assets of 4,6,334.68. "It appears that the bank, which was admitted to memberMarch 4, 1918, was granted trust powers by the State of Mi chigan on November 12, 1927, authorizing it to act as executor, administrator and guardian, but, according to our records, has not previously exercised such powers. The bank 15 Subject to the so-called general condition of membership ! hlch there requires that except with the approval of the Board shall be no change in the general character of the lassets of or broadening in the functions exercised by the aulz at the time of its admission to the System, and the exof trust powers without first obtaining the approval ul the Board is regarded as a violation of that condition. v, "It would appear that the violation is inadvertent, and Board will raise no objection to the bank's administering the one b, gUardianship it now holds, but if it desires to accept ,;p any additional trust accounts it should first make ap?tVcation to the Board for permission, in accordance with the general condition of membership, to exercise the fidu'arY powers granted by the State authorities. th "The comments in the report of examination indicate that s,, bank does not maintain proper records for the guardianlt is now administering. The responsibilities assumed t%tthe acceptance of a fiduciary account require that Fide411 e records be promptly established and properly maintained. cou "It is assumed that the Board will be advised in due to fe of corrections and adjustments effected with regard the reported violations of Section 5136 U.S.R.S. and of "guletion q.n Approved unanimously. Letter to Mr. Sihler, Assistant Vice President of the Federal of Chicago, reading as follows: The i neference is made to your correspondence regarding INhet;flquirY presented by The Chicago Stock Exchange as to tr,'er certain transactions constitute bona fide arbitrage ti:sactions within the meaning of section 3(d) of Regula411 , , 1al% As You know, a reply to your letter has been dewhile certain practical aspects of this problem were ei ue, i nvestigated. acti It is understood that the inquiry relates to transin two securities of which the first is an issued J:ant of a particular corporation which evidences a right 104!7) "to subscribe, by the payment of a specified sum of money, to a security which is definitely to be issued by the col.Poration. The second security is the security that may be ?btained by exercising the warrant, and it may conveniently 'e referred to as the subject security. "In order to take advantage of the disparity in the relative market prices of the warrant and the subject seell ,ritY, a customer of a member of a national securities ex.ct'ezge purchases the warrant through the member and simul211neously, or nearly simultaneously, sells short through ,Die member that quantity of the subject security called for DY the warrant. „i'Iii one case the subject security is part of an addia ,--- issue of outstanding securities of the corporation is sold short as an issued security. In another case the subject security is part of an issue of which no portion i'3s out standing, and it is sold short on a 'when issued' ers. In both cases the customer instructs the member to c ercise the warrants and to cover the sales with the se, , IIrities thus acquired, and the member advances the subscrip61on funds for this purpose. or t It is the opinion of the Board that if transactions C type described are effected as outlined above in good faith and not for the purpose of evading or circumvent006 the of the regulation, such transactions would 11,i41!:stitute bona fide arbitrage transactions in securities 1:' 0114.1in the meaning of section 3(d) of Regulation T and, theresmicht be effected in a special account pursuant to the ions of that section.” pro:I Approved unanimously. Thereupon the meeting adjourned. 441'01i-ea: Chairman.
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