frsbog_mim_v44_0048.pdf

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TO

THE FEDERAL RESERVE BOARD

FEDER L RESERVE

BO RD

W SHINGTON

X-9425.

January 11, 1956.

Dear

Sir:

There are

inclosed

herewith

six

copies

of a tentat ive draf t

of Regulation

U

- - Loans by

Banks

for

the Purpose

of Purchasing or

Carrying

Equity

Securit ies

Hegistered

on n

National

Securi t ies

change

- -

including ns a foreworc

1

an explanatory statement

to

accom-

pany the tentat ive draf t . Additi0nal copies arc being sent under

separate cover.

This

tentat ive

:"lraft

i s under

considerat icn

by

the

Boc.rd}

but

before

taking act ion the Boar i s

submitting t

for

criticisms

and suggestions. I t will be appreci[lted, therefore, i f

you

and

the

officers and

counsel of

your

b a n ~

wil l

study th is

draft and forward

your comments anc suggesti,)ns thereon as promptly as may be possible.

In addit ion,

please

submit copies of

t h e ~

tentat ive

draft

and

the

explanatory statement to such member

and

nonmember banks, represent['<-

t i

ves

of securi t ies exchanges, e tc .

as

you may

consider a.< visable,

and

obtain

from them suggestions

anc?

crit icisms in writ ing, the origi...:.

nals thereof to

b ~ 3

forwarded

to

the Board

as soon

as

received.

All comments anc: suggestions should

be

forwr..rrJed to the

Boar :1 within

th i r ty

do:ys

after the date

of

th is le t te r .

48

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.........

- 2 -

X 9425

You will

note that

section 4 of

the tentative

draft

provides

that the

maximum

loan values

of registered

equity securit ies for the

purposes

of the regulation s h ~ l be

such

as

the

Board

may prescribe

from time

to

time in supplements

to the regulation.

Two

alternative

drafts of

such a supplement

are attached to the regulation. One of

these

includes

the

statutory requirements that

were adopted

in

Regula-

tion T for brokers and dealers.

In

the other the method of determin-

ing

margin

requirements differs

from

that

in

Regulation

T. t

is the

present intention of

the

Board

in the event

that

a

different

method

is prescribed

for banks

when

Regulation U

is

issued

to

modify Regula-

tion

T so

as to bring

the

method

of determining

margin

requirements

for brokers and dealers

into

conformity with

that

for banks.

Attention

is

called

however

to the fact that the

Board has

authority

to

change

m r g i ~

requirements

from time

to

time

and

the

in-

elusion of the figures

in

the tentative

supplement

to Regulation

U

based upon

the statutory

formula

is

not

to

be

taken as indicating that

the

Board has undertaken

to

decide at this time what margin

requirements

will

be

included in the regulation

when

i t

shall

be finally

approved

~

promulgated.

TO ALL FEDERAL

RESERVE

AGENTS

Very

truly

yours

Chester Morrill

Secretary.

4 9

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January 10 1936

Tentative

draft of regulation prepared t

direction

of

Board

of

Governors of

the

Federal

~ e s e r v e

System

but not yet

acted

upon by the Board

of

Governors.)

BOARD

OF GOVERlWRS

OF THE FEDERAL

RESERVE SYSTEU

LO.ANS

BY BA. 'rKS

FOR THE

PURPOSE

OF

PURCHASING OR CARRYING

EQ.UITY

SECURITIES

REGISTERED O:: T A NATIOKA SECURITIES E X C H A ~ G E

REGULATION

U

5

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Reverse side of cover page)

INQUIRIES

REG ARDETG

THIS

R3iGUL ATI O

ny inquiry relat ing

to

th is regulation should be ad-

dressed to the Federal Reserve bank of

the

d is t r i c t

in

which

the

inquiry

ar ises

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EXPLANATORY

S T A T E : 1 E ~ · J T

TO ACCOMP» TY

T E N T ~ i T I V E

DRAFT OF REGULATION

U

The T'ri:nary purpoae of R e ~ : ; u l e t i o n U, of which a

tentat ive

(' 'aft

i s

a t

tached,

i s to prevent circu:.wontion of

the

objects

of Regulation

T by

borrow-

ing fro:n banks for the purpose of purchasing or carrying stocks

on

ter:·,s more

favorable tha:c1 those prescribed

for

securi ty

loans by brokers

~ m e .

dealers .

Borrm·ring fro"' ba."1ks for

any

pur-vose

except the

purchasing or carrying

of

registered

equity secu r i t i e s - - i . e . ,

ic1

ge:1eral, l i s t ed s tocks - - l s not

subjected

to

':'largin re0uire·"1el1ts prescribed in this

regulation.

General

bcmkine pre1ctices

with respect to

loans

for industr ial ,

ac;ricul tural , a::1d

co":'l::ercial purposes would not be a f f e c t e ~

• recardless

of whether these

loans are secured or unsecured, and i f securec'l., reo:;ardloss

of

the char-

acter of the

col la tera l .

The

regulation

does

not

a.'l:?lY to

a ly of

a ba:1kr s

loa.1s,

no Y atter for

what

purpose, to

a

borrower

none

of

whose loa;.'ls

with

the

bank

are

secured

by

an equity

secur i ty registered on

a

nat ional

securi t ies excha:c'1ge.

In case· the col la tera l for a

loan

includes

registered equi

securi t ies ,

the loan wil l be

subject

to

the

r e ( ~ u l a t i o n U:'lless the

loan

i s not for the

purpose of purchasing or carrying such securi t ies ,

A bank

which wishes t

establ ish the fact that such a loa:n is not subject

to

the

regulPtion, :: ay

do

so

by

obtaining

a 1

a}nr•',:n·in.te

stater1ent fron the

borro•7er.

5

Loans :"lade for the pur:)ose of purchasing or c a r r y i n , ~ securi t ies that are

not re.e:istered gp Q; :.1ational_ securi t ies

e x c h ~ m . : : ; e

are exe:"lpt fro·,., the

regulat ion.

N o t h i n , ~

in the

regulat ion ~ · r o u l d require

the l iquidat ion

of

any

l o ~ : m made

before the effect ive date, or any

loan,

whene'ITcr r adc, by reason of a decline

in

the narket velue of the col la tergl .

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Explanatory Statement--page 2

Margin requirements to be

prescribed

:from· time

to

time by the Board

will be

promulgated

by issuing supplements to

this

regulation.

wo

s ~ p l e s

of such a supplement are attached to the

regulation.

one of

these

includes

the requirements

that

were adopted in

Regulation

T for

brokers

and

dealers.

In

the other the method

of

d.etermining margi:1

requirements differs

from

that in Regulation T. t is

the

prese•1t

intention

of the Board., in the

event

that

this

different

method

is

prescribed for

banks

when

Regulation

U i s

approved

and issued to modify

Regulation

T s• as to bring the method

of

determining margin

requirements

for brokers

and dealers

into o n f o ~ i t y

with that for banks.

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ONTENTS

Sec. 1. Scope

and

effective date of regulation • • • • • • • • •

1

Sec.

2 Definitions •

Sec. 3. Reaulated loans and exempted loans

(a) Regulated

loans

• • • • • • • • • • • · •. •. • • • 3

(b)

Exempted

loans • • • • • • • • • • • • • • • • • • •

•

.•

·

•• 3

Sec.

4.

Makine

of

r e ~ l t e d loans

(a)

Conditions

for making re:;u.lated loans •••• 6

(b) Definition

of maximum lo;:m value • • • . . • • • • 6

(c) Maximum

loan

value of reF ;istered eaui

securi t ies

when

r e ~ y p o t h e c t e d • • · · • · · • · • •

7

(d)

Current

market price ••

. . . • . . . . . . . . . . . • • . 8

(e) Lowest market price 9

Sec. 5.

Maintenance

of

rer;ulated

loans

(a)

Liquidation not required

• • • • • • • 11

(b) Definition of required col lateral • • • • • • • l l

(c) Changes in required col lateral • • • • • • 11

(d)

Time

allowed for changing

col lateral

•• ••

12

(e) Securit ies involved in

reorganization

•••• 13

Sec. 6. Loans

made before effective date • • • • • • • •

14

Sec. 7• Miscellaneous provisions

(a) Imposition of additional requirements

y a. lks

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 5

(b) Renewals and extensions • • • •

15

{c) Interest , service charges, etc ••• •• 15

(d)

Innocent mistakes • • • • • • • • • • • 15

(e)

Transactions

outside

United

States

• • •

16

Sec.

8, Violations of th is regulation • • • • • • • • • • • • • • • • • • • • 16

Appendix

(Provisions of Securit ies E x c h a ~ . . e : e

Act) ••• .

•• 17

Su·:m1emen ts Haximum loal.l._Y.alues

of

ro2;i

stored

~ g u i t y

securi t ies

for nurposes of R ~ ~ a t i o n U

5

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(Tentative

Draft

of R e ~ a l a t i o n

PreEared

at

Direction

of Board of Governors of the Federal Reserve

System

but

Not Yet

Acted Upon by the Board of Governors.)

REGULATION U

L O A ~ S

BY

BANKS

FOR

THE

PURPOSE

OF

PURCHASIXG

OR

CARRYING

EQUITY SEC' URITIES

REGISTERED O

A

~ A T I O N A L

SECURITIES EXCEA.JGE

SECTIQ?.T 1 .

SCOPE

A'J:l E F F E C T I ~ T E DATE OF P..EGULATIO:T

This regulation i s issued p u r s u a ~ t to a u t h o r i t ~ contained in

the Securit ies

Exchfu l::.,e

Act of 1934, part icularly sub section (d)

of section

7 thereof,

to

prevent

the

excessive

use of

credit for

the

purchasing or carr;ring of or t rading in securi t ies in circum-

vention

of the other provisions of

tl1at

section. t a;Jplies only

to banks;

a 1d i t

relates

only to loa ls

for the purpose of

purchas-

inG

or c a r ~ r i n g

equity securi t ies registered on a

national

securi-

t ies exchange.

This regulation shall become effective

on

, 1936.

55

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-

SECTION 2. DEFINITIONS

For

the purposes

of

this

regule.tion,

unless the

context

otherwise

requires, the following terms shall have the meanings respectively

assigned to them.

(a)

The

terms person ,

member ,

brokeru, dealer , ..mg:-

chasell, ~

1

~

1

security , equity security , exempted secur+t:r ,

and

bank'

shall have the meanings given them in

section

3(a) of the

Securit ies

Exchange

.Act of 1934 (printed

i: 'l.

the appendix

of

t is regula

t ion) except that the term ~

shall

not include any member of a

national securit ies exchange.

(b)

The

t_erm registered egui ty securitytr

means

an equity security

(other

than an

exempted security) which--

(1) Is

registered

on a r ~ t i o n a l

securi t ies

excrUlnge:

or

(2)

In consequence

of

i ts having unlisted trading privi

leges on

a national securit ies

exchunge,

must, under

the

provisions

of

section l2(f) of the Securit ies

:Exchange .Act

of 1934, be

considered

a security

regis tered

on a national

securi t ies

exchange .

(c)

The

terms rep1lated

loaQ

and exempted loan

shall have

the

meanings

given

them in section

3

of

t i s

regulation; the t e r ~ s llmaximu11

loan value

11

, current

market price ,

and lowest

market

price

shall

have

the

meanings

given

thom

in sectiOl1 4 of th is ret:;.llation:

and

the

term

required col lateral shall have

the :r::eardng

given t

in section

5

of this

regulation.

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- 3 -

SECTION 3.

REGULATED LO.A1·1S .A: JD EXFl'PTED LOAl\JS

(a)

Ref;Ulated

loans. -

The

ter"T. r e ~ l l c ? t e r loan"

means a discount,

ad-

v:mce, overdraft or other

loa..11

for

any

of the follo,dng

1)U "l)Oses,

except

that

i t

shall

not include

any exer:J'9ted

loan:

(1)

The ~ u r p o s of

purchasing

a

registered equity security

from

or

through

a

broker

or

dealer

who i s

a member

of

a

national

securi t ies

exchange or who tra."lsacts a business

in

securi t ies

through the mediu--n

of

any such

~ m b e r

(2)

The

purpose of reducing

or

ret ir ing any indebtedness

which

was

originally

incurred

for the

purpose of

so purchas-

ing

a

registered equity security

and which i s

secured

by a

registered

equity security so purchased;

3)

In the

case of a

loan to

a

broker or dealer, the

purpose of enabling the borrower to

make

or

maintain

loans

to

his

customers

for

any

of

the purposes

specified

above.

(b)

Exe::wted loans. - The ter n exe'11ptod loan" means

any loan described

below:

( 1)

AAy loan to any

t.Jerson

so

lonf

as neither that loan

nor

any of

the bankl

s o u t s t ? : J ~ i n g

loans

to

that :?erson i s

secured

1n

a:ny WE>.Y by any registered equity security;

(2)

Any loan

(even

though secured

by a

registered. equity

security) which is not for

a.11y

of the purposes specified in sub-

section

(a) of

this section; and,

a1though

the

exemption

of a

loan

under

this provision does not :1ecessaril:r require the ob-

taining

of

a

state" lent

from the

borrower as to the purpose of

the

loan,

a

ba.11k

T l/3Y

t reat

a

l o a ~ 1

as

not being

for

any of the

purposes

specifietl

in

subsection

(a)

i

t

obtains and

accepts

in

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-

4

good faith either

A)

• t t e r ~ e n t signed by

the

borrower

to the effect

that

he is

not

a broker or

dealer

in securi-

t ies

and

that

the

loa.n is not

for

the purpose of purchasing

any securities or retiring or reducing a ~ indebtedness in-

curred for

t l ~

purpose of

purchasing

securities,

or (B)

a statement signed

by

the borrower otherwise showing that

the loan is

not

for

a ~ v

of the purposes specified in sub-

section

a);

3) Any .loan secured

exclusi

e l ~ r

by

exempted securi-

t ies

(whether

registered

or

unregistered) and/or

nonequity

securities (whether registered or

unregistered);

4) Any loan

to

a

banlc;

5) Any l o a ~ · to a dealer, or to two or more dealers

acti:::J.g

jointly,

to

aid

in

the financing

of

the

distribu-

tion

of securities to customers not tilrough the medium of

a r..atiorlal

securities

exchange;

6) A ny discount of, or advance against, a draft

with

securities

attac:1ed which

is

payable on presentation

in

the

ordir..ary course of busir.ess;

(7) A l1 Y

te:1porary advance

to finance

the purchase of a

security in

connection

with which the banlc, as agent of the

purchaser, accepts delivery of

and pays for

the security

under an agreement, made in good faith and not to evade or

circumvent

the provisions of this

reglllation,

that the lend-

ing

ba.nlc is to be repaid the full amount of the advance in

cash promptly upon completion of

the purchase;

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5

8) A ny loan which is maintained for only a

frac-

tion of a calendar day;

(9) loan

made

in

exceptional

circumstances,

in

good faith and not for the purpose of evading or circum-

venting the provisions of this regM ation. to meet

the

emergency needs of a broker or

dealer

who

is

a

member

of a

national

securities e x c ~ g e

or who has

filed

with

the

lending

bank

his

written

statement

that

he

transacts

a business in securities through the medium

of

any such

member: Provided, That any

bank

maldng any such loan

shall, within three

~ s

mal -e a

concise

written report

of all material

facts

relative thereto to

the Federal

Reserve agent of the district in which

the

principal

of-

f i ce

of

the

bank

i s

located

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SECT ION 4. V.AKING OF REGULATED LOANS

(a)

Conditions

for making regulated loans. Every bank

shall

comply with the following requirements in making

or

increasing any

regulated loan:

(1) The loan

shall

be represented by a note,

d o c ~ n e n t or entry which does not represent either

in whole

or in part

any exempted

loan; and

(2)

The

bank's

total

outstanding

regulated

loans (including the

current

loan

or increase)

to

the

same person

made

on or

after

the

effective date

of this regulation shall

be

secured

by exempted

securities,

nonequity

securit ies,

and/or registered

equity

securities

which have a maximum loan value

at

least

as

great

as

the

a ~ o u n t

of

the

total

of

such

regulated loans.

(b)

Maximum loan value. The term maximu.tn loan

value

when

used

with rezpect to any

item of

collateral securing a regulated loan

means the maxi:nu.m regulated

loan

which a

ban};::

may, under the

provisions

of this regulation, maJ:e on such item of collateral; and, in the

case of

collateral

consisting

of more

than

one item,

the

maximu. ll loan value

is

the

su. 11 of

the maximum loan values of the various items

of

the collateral .

The

follo,ving items shall

have

the following ma:d1'll\lre loan values:

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- 7 -

l )

The maximum loan

value

of

everything

other

than

a ~

exempted

s e c u ~ i t y , a

nonequity

security, or

a

registered equity security,

shall

be

nothing;

(2)

The

maximum

loa:1

value

of an

e:cempted

security or

a

nonequity secUl·ity

shall

be not

more

tha::.

t i ~ e C \ ~ r e n t market price of the security;

3) The maximum

loan

value

of

a

registered

equity

securi ty shall be

the ma:;cimux:1 loan

value

which

the Board

of

Governors

of

the Federal

Reserve

Systc::1 shal l preocribe from

time

to time ir.

supple-

nents

to

th i s regulation, wl1ich

will be

issued in

advance of the date upon

wllich

such maxi' 1Um loan

value

becomes

effective.

(c) S:geciJ11

ma:d::ru..T. l2 Qd1 ~ o r rehy:gothecated securi t ieg,

-

Subject to the

conditions

specified in

th i s

subsection, registered

equity

securi t ies

which are relwpothecated by a

broker or

dealer shall

have such

special

maximum

loan value or values

as

tl:e Board of

Governors

of

the Federal

Reserve Syste;J: shall prescribe

from

tL::e to

time

in

supplements

to t:;is

regulation,

which

17ill

be

issued

in

advance

of

the date on w;.1ich

such

maximum loa::1 values bec:.J:ne

effect ive,

In

order

tha t reg is tved equity securi t ies ma;:r b :we the special maximuT.

l o a ~ value

or

values prescribed purcua:::.t to

t ~ 1 i r

s-u.bsect ion:

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- 8 ..

1) The securities shall secure a regulated

loan to

a

broker or

dealer

who is

a

member of

a

national

secarit ies

exchange

or

who

has fi led with

the lending bank his \-rritten statement that

he

trans

acts

a

business

in securities througl1 the medium

of

any such member; and

2)

The broker or dealer must be carrying such

securities for the account of

customers; and a

bank

m y treat

such

s e ~ ~ r i t i e s

as

being

carried

for the

account

of

customers

i f

i t obtains and

accepts

in good

fai th

a

written statement signed

by

the

broJ.:er

or

dealer

to the effect that they are being so ca..rried.

d)

Current Market Price. - For the purposes

of this regulation

and any supplements thereto, the

current market price

of

a

security

m y

t the option

of the bank be considered

to

be

either

t ~ e closing

bid price or

the closing

sale price of the security on any national

securities exchange on the preceding business ~ ~ y Provided, That,

in

the absence of such

a

closing sale price,

the bank

shall

have

the

further option of using tlwprice at which the last recorded sale of

the

security during

the currer:.t or preceding caler:.dar month was

m de

on a

national

securities exchange: Provided, further,

That, i f

none

of the

prices

described above

is

available, the bank m y

use

any

reasonable estimate

of

the market value

of

the security.

In

ascertaining the

foregoing prices,

a b r ~

m y rely

upon any

regularly published reporting or quotation

service used

by the bank

including

any

newspaper

or financial publication carrying

market

re

ports with respect to

an

exchange on which the

security

is registered,

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63

-

9

In the

case

of

a

loan

made

at the

time a

security is pur-

chased

or

in

connection with

the

purchase

of

a

security

to

be sub-

stituted for collateral

previously

pledged, the price at which

such security

is

pu.rchased may be

considered

by

the

bo.nk

at i ts

option,

to

be the current market price for the purpose of such

transaction.

e)

Lowest ma.rl-:et price. - For the purpose of this regulation

and

s u p p l e ~ e n t s

thereto,

the

lowest market

price of

a

registered

equity security

during

a

specified period

means

the

lowest price at

which that security has sold during that period on

the

national

securities

exchanges on wl1ich i t

is

or has been

registered in-

eluding any

sales

made on such exchanges during the part of

the

specified period which preceded

thei.r

respective registrations

as

national securities exchanges under the. Securities Exchange Act of

1934 : Provided, That,

i f

the security is a stock upon which there

has

been any

stoc]:;: dividend

a:nounting to more

than 10 percent in

any one

calendar

year,

or

any reduction or

increase

in the ~ ~ e r

of shares

by

calling in the outstanding shares

and issuing

in substi-

tution therefor a smaller or larger number

of

shares, or any other

change accomplishing substantially

the same result as

any such

re-

duction or increase, ~ prices ~ s t b l i s h e d before that dividend or

change

in

number of shares or other change shall be adjusted

therefor.

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10

A bank

using

a figure published

as

such l o w ~ t market price

in

any record published or approved by

any

national securities

exchange

mayrely

on

that figure

for the purposes

of

th is

regu-

lation

6

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-

11

-

SECTIOH

5· M A IlJTEHA NCE

OF REGULATED

LOANS

(a)

Liauidation

nQi

required.

-

In

maintainil1g any

regulated

loan, every ba1ik shall comply with the

requirements

of th is section

witt. respect

to

the withdrawal and

substi tution of

collateral;

but

any

loan

made before

the effective date of this

regulation

or

made

in

conformity

with

the requirements of this regulation may be ma.in

tai:J.ed

regardless

of changes in mark.)t

prices,

and nothing in this

regulation

sball

be

construed

as requirir.g any bank

to reduce

any

loan, obtain additional collateral for any loan,

or sel l

any

collateral securing any loan,

solely

because

of changes in market

prices.

(b)

Reqyired collateral .

- The

term required

collateral

means an exempted security, a rlonequity secu.ri ty, or a

registered

equity

security,

which

secures

a regulated loan made on or after

the

effective date of this

regulation because:

1) t was required for the making

of

the loan

u n e l ~ section of this regulation; or

2) t was req11ired in order to make a cr..ange

in

the

collateral

for that

loan

·under

the following

subsections of this section.

(c) Changes in required collateral. -

No ba. 11c shal l maintain

a regulated loan and a t the same time

permit the

withdrawal

of any

required collateral , ~ ~ l s s

65

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- 12 -

1)

.After the wi thdra1,73.l the b a r ~ k s total out

staLding regulated 10L1r.s

to

the sar.1e person made on

or

after

the

effective

date of

tnis

regulation

are

se

cured

by

exempted securi t ies ,

nonequity

securi t ies,

and/or registered equity securit ies, he..ving a

maximum

loan

value

at least .::l.S great

.::l.S

the aznour.t of

such

total

of r e g c ~ l t e d loans; or

2) The

total

amount of

such

outstanding regulated

loans

to such person

is reduced,

or

other

exempted

securi

t ies

nonequity

securities, or registered equity

securi t ies

are

substi tuted to secure such loans, or both, to such

an extent tl1at

.A)

the

maximu<n

loon

value

of the

securi t ies

substituted,

plus the

amount

of

reduction in

the regulated loans,

i s at least

as great as the oaximum loan

value

of

the securi

t ies

withdrawn, and

B) the curre1J.t

l " . a r ~ . : e t

price of t : c ~ e securi

t ies substituted, plus the amount of reduction

in

the

regulated

loans, is

a t least

as great as

the cur:r-ent narket

price of t1w

securi t ies with

dr<:mn

d) Time r..llowed

12. :

changing c:::lllaterp,J., ... In order to comply

with

the requirements of subsection c)

of

tl1is section with

respect

to·

changes in required col lateral , the necessm-y substi tut ion of securities

66

'

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- 3 -

and/ or

reduction

in the reg J.lated loans

slw.ll

be

made

on the

same

day as the withdrawal of

required collateral

except that in the

case of a subst i tut ion involving

ei ther

1) the

sale

of

required

col la tera l and the purchase

a:1d deposit of

other col la tera l to

secure

the

loan, or (2)

the

purchase and

deposit

of

other

col la tera l

to secure the loan

and

the sale

of required

col la tera l

1

the bank

may

1

i

boti1

the

contract of

purchase

and contract

of

sale are

made

within a

period

of two successive business d a ~ r s allow such time for

mal:ing deliver ies

and

otherwise completing

the subst i tut ion as may

be

reasonably

necessary.

(e) Securi t ies involved

in reorganizat ion. - Notwithstanding

the

foregoing

provisions of

th is

section, a barut may

permit

the with-

drawal

of

any

secur i ty

involved

in

a

reorganization

of

the

issuer

of

that

secur i ty when such

withdrawal

s reasonably necessary

to

fac i l i ta te

such reorganization: Provided, That a l l

cash,

exempted

secur i t i e s

nonequity

securi t ies and

registered

equity securi t ies

received, under

the ter:ns of the

reorgan.ization, in

exchange

for

the

secur i ty

withdrawn

under

th is provision, shal l promptly be a p ~ l i e d

on

the regulated

loans

or

subst i tuted for

the securi ty

withdrawn.

67

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-

14-

SECTIOlf

6. LOANS

MA DE BEFORE E F F E C T ~ V E

DA1 E

Nothing

in

this regulation shall be

construed as

requiring a balik to

ob

tain

the

repa.:. r.1ent

or reduction

of, or

the

pledge

of

additional

collateral

for, any loan w ~ i c h was

made before the

effective date of this regulation or

with

respect

to

any

renewal or

extension

of maturity of ny such

loan: Pro

~ That, notwithstanding ny

other provision of this

regulation:

(1) All e x e ~ p t e d sec-urities, nonequity securities, and r ~ g i s -

tered equity securities securing any

regulated

loan or group of

regulated

loans

at

the

opening

of

business

on

the

effective

date

of

this regulation,

and l l securities thereafter substituted therefor

pursuant to

the

requirements of

this

section,

shall

be identified

·by

the ba::lc and

shall

be treated

for

the purposes of t11is regula

tion

as i f they secured

only

that

loan

or

group of

loans;

2)

No such identified

collateral

sltall be taken

into

account

in

deternining whether or

not

any regulated loan made after

the

ef

fective date of this regulation

is secured

in

c o ~ p l i a n c e

with the

terns of t l ~ s

regulation; and

3) withdrat7nl of any such identified collateral shall be

made

except

u . ~ d e r

the

s a ~ e

terms

and

conditions as

apply

under sec

tion

5 of this

regulation

to a w i t h d r a ~ a l

of

required collateral

se

C Ill ing a

regulated

loan

made after the effective date of this

regu

lation.

A

ba11k

may

obtain

and rely

upon a statement

signed

by

the

borrower

respecting

the

purpose for whicr. a

loan made before

the

effective

date of

this regulation

was obtained, in the s ~ e

manner and

with the

same

effect

as

provided by

section

3 b) of this regulation for loans

made

on or after

such effective date.

68

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- 15 -

SECTION 7. MISCELL;JJEOUS PROVISIONS

(a) Imposition 2£ additional requiremt7mts £I banks. - Nothing

in this

regulation

shall be

construed

as

restrict ing

the

right

of

any

bank

to

rec

uirc .dditional collateral

t

th; 1 tiroo o f or

subsequent

to, the making of any loan,

or

as

restrict ing

the r ight of any bank to

refuse to

make

or maintain a loun.

b)

RenewaJ:§_

extensions. - A renewed or

an

extension of

the

maturity

of

a loan neod

not

be treated

as the

making

of

a

new

loan

i f

69

the amount

of the loan is

not

i n c r e c > . S ( ~ d

except

c; s permi

t tcd

in subsection

(c) of this

section;

: ut any

other

incre;_,se

in

the amount of a loan shall,

to

the

cxtGnt

of tho

ineret;.so,

be treated as the: making

of

a

loan.

(c)

Intercdt, . 0 ~ . £ . £ . charges, etc. - Nothing in this

regulation

shall

be

construed

a s

preventing

the

addition to

a

regulated

loan

of

interest

on the

loan, sales

or tr;.msfer

taxes

on t r a n ~ > c t i o n s ln

connection

with

the loan, service charges

imprJsed by the

bank

in connection with

the

loan or any

incidental expenditure

made

by the

bank

for

i t s own protection,

regardless

of the amount

of

the

loan or

the

collateral

which

secures

the

loan.

(d) Innocent

mistakes.

- No

innocent

mistake made in good

fai th

in

executing

a

tl:·c.nsaction,

recording,

detol'mining,

or

calculating

any

loan,

me.rket price, loan value, or

othor administrc..tive

adjustment or

detai l ,

shal l

be

deemed to

be

a violation of this

regulation i f

the mistake

be

corrected

as

promptly

as

possible

upon

i t s discovGry.

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- 16 -

o)

Transactions

outside the United States -

The

provisions of

this regulation

shall not

cpply

to

E.ny transE:ction which

s

effected

outside

the

Stctes of

the United St<lte8 and the

District

of Columbia

and

is

not for the purpose

of

evading or circumventing

the

provisions

of this

r;gulation

SECTION

8

VIOLATI01{5 OF T .diS REGULATION

Violations of this regulation are subject

to

the provisions

of section 9 and 32

of

the Securities Exchange Act of 1934,

which are printed on p.-:tges

and of the Appendix

to this

rebulation

70

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- 17-

APPENDIX

There are printed below certain provisions

of

the Securities Exchange

Act

of 1934

which are pertinent to the

subject

matter of this regulation:

SEC. 3.(a)

(3) The

term

member when used with respect

to

an

exchange mear.s ~ y person who

is

permitted either to effect

transactions

on the e x c h £ u ~ e

without

the

services

of another

person c t i ~ g

as broker, or

to

make use of the

faci l i t ies

of

an exchange

for

transactions thereon without payment

of

a

commission or fee or with the payment of a commission or fee

\7hich is less than that charged

the

general

public,

and in

cludes any

firm

transacting a business as

broker

or

dealer

of \7hich a member

is

a partner,

a:1d

any partner

of any such

firm.

(4)

The term broker means acy person engaged in the

business of effecting transactions in

s e ~ ~ r i t i e s

for

the

ac

count of

others, but

does not include a bar..k.

(5)

The

term

dealer means any perso::1 engaged in

the

business of bu;;ring and selling securities

for his

0 .7n account,

through a broker or

other\7ise,

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

bo.::k

means (A) a

b a l l d ~

insti tution

organized ~ ~ d e r the

laws

of the

United

States,

(E) a

member

ba1ik

of

the Federal

Reserve

System, (C)

any other

barJdng

in

sti tution, r:hether incorporated

or

not,

d.oir.g

business

under

the laws of any State or of

the

U ~ 1 i t e d

States,

a

substa:1tial

portion of the business of \7hich consists of receiving deposits

or exercising fiduciary p0\7ers similar to tl1ose

p e r ; ~ i

t ted to

national ba:1ks under

s e c t i o ; · ~

11 (k) of the Federal Reserve .A.ct,

as

amended,

and

which

is

supervised and exrunined by

State

or

Federal authority having supervision over b ~ : i k s

and

which is

not

operated

for

the

purpose

of e v a d i : ~ the provisions

of this

t i t le

and

(D)

a receiver,

conservator,

or other l iquidating

agent

of

a ~ y

insti tution or

firm

included in clauses (A),

(E),

or

(C)

of

this

paragraph.

(9) 'rhe

term

person means an

individual,

a corpora

tion, a

partnership,

an association, a j o i n t ~ s t o c k company,

a business t rust , or

an

unincorporated o r g a ~ 1 i z a t i o n

10) The term security means any

note,

stock,

treasury stock, bond,

debenture,

certificate

of

interest or

participation

in any

profit-sharing

agree,nent or

in

any oil ,

gas,

or other mineral royalty or lease, any collateral-trust

cert if icate, preorganization certif icate or

subscription,

transferable share, investment

contract,

voting-trust cert i

ficate, certif icate of

deposit,

for a security, or

in

general,

any instruznent

commonly known

as

a

securit:ir ;

or

any

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- 18 -

cert if icate

of

interest

or

participation

in, temporary or interim

cert if icate for,

receipt

for, O:;t wa "rant or right to

subscrib•

to or purchase,

any

of the foregoing; but shall not include

cur

rency or

any note, draft , bil l

of

exchange,

or

baclcer

1

s accept

ance

which

has

a

maturity

at

the time of

issuance

of not exceed

ing

nine months,

exclusive of

days

of

grace,

or any

renewal

thereof the maturity of which is likewise l i ~ i t e d

11)

The

term equity

security means

any stock or simi

lar

security; or

a r ~ security convertible,

with or

without

con

sideration,

into

such a security, 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

Commission

shall

deem

to be

of similar

natu.re and consider necessary

or

appropriate,

by such

rules

and

regulations

as

i t

may

prescribe

in

the

public

interest or for the protection of investors,

to

treat as an equity security.

12) The

term

exe:npted

security or

"exempted

securi

t ies shall include 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 ~ h i c h the United

States

l1as a direct or indirect in

terest as shall be

designated

for

exemption by the

Secretary

of the

Treasury

as necessary or appropriate

in the public in

terest

or

for the protection of investors;

securit ies 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 i n s t r ~ e n t l i t y of

a

State or

any

poli t ical subdivision thereof

or

any mU11icipal corporate in

strumentality

of

one or more States; and such

other

securit ies

("7hich

may include, among others, unregistered securities, the

market in \7hich

is predominantly

intrastate) as

the

Commission

may, by

such rules and regulations

as i t

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 this t i t le

which

by their

terms

do

not apply to an "exempted

security or to

"exempted

securi-

t ies.

13) The

terms

buy"

and purchase each include

acy

contract to buy, purchase, or otr.eruise acquire.

14)

The

terms

sale

and

sell

each

include

any

con

tract

to

sell

or othen7ise

dispose of.

SEC. 3. (b)

The

C o ~ ~ i s s i o n

and the Federal

Reserve

Board, as

to

matters

r:ithin

their

respective jurisdictions,

shall have

power by

rules

and

regulations to define

technical,

trade,

and

accounting terms used

in this

t i t le insofar as

such

definitions

are

not inconsistent

with the

provisions

of

this

t i t le

72

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- 19-

SEC. 7. a) For the purpose of preventing the excessive

use

of

credit

for the purchase or carrying

of

securities, the

Federal Reserve ~ o a r d shall, prior to the

effective

date

of

this section and f ~ o m time

to

time thereafter, prescribe rules

and

regulations

with respect to the

amount

of

credit that

may

be init ially extended and sUbsequently maintained on any seM

curity

other

than an exempted security) registered on a na

tional securities exchange,

1or

the

ini t ia l

extension

of

credit,

such

rules

and regulations

shall

be based upon the

following

stan

dards:

An amount not

greater than

whichever is

the higher

of--

1) per centum of the current m a r k e ~

price

of

the

security, or . ,

2) 100

per c e n t u ~

of the

l o w e ~ t

market

price

of

the

security

during

the

preceding

thirty-six calendar

months, but not more than

7

per centum of the current

market

priee,

Such rules and regulations may make appropriate 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 se

curities; the transfer of a c c o u n ~ s 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 mar gina and mar

ket prices; and similar administrative

adjustments

and details,

For the parposes of paragraPh

2)

of

this subsection, until July l

1936

the

lowest price

at

which a

security

has

sold

on

or

after

July

1, 1933 s l ~ l l be

considered

as

the

lowest

price

at which

such

security has

sold during

the

preceding thirty-six calendar

months.

b) Notwithstanding the provisions

of

subsection

a) of this

section,

the

Federal Reserve Boord,

may

from time

to time, with

respect

to all or specified securities

or

t r a ~ s a c t i o n s

or

classes

of

securities, or

classes

of transactions, by such

rules

and

regu

lations 1)

prescribe such lower margin

requirementsfor

the ini t ia l

extension

or

maintenance

o credit

as i t

deems necessary

or

appro

priate for

the

accommodation of commerce

a ~ d industry,

having due

r e ~ d

to

the

general

crGdit

situation

of

the

country,

and

2)

pre

scribe

such higher m a r g i ~

requirements

for the init ial extension or

maintenance of credit as i t may deem

necessary

or apPropriate to

prevent the excessive

use

of

credit to finance

transactions

in

securities.

c) I t shall be u . ' l l a : V ~ f u l

for any

member of a national securities

exchange or

any

broker or dealer who transacts a business

in securi

t ies

through the medium of any

~ h

member directly

or indirectly

to

extend

or maintain 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) regis

tered on a national securitieg exch:;;.ng@ in contravention

of

the

rules

and regulations which the

Federal

Reserve

~ o a r d shall pre

scribe

u. der

subsections a)

and

b)

of this

section,

?3

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- 2 0 -

(2)

Without collateral or on a r ~ collateral other

than

exempted securi t ies and/or securi t ies

registered

upon a national

securi t ies exchange,

e::cept in accorcbnce \71th

such rules and

regulations

as the Federal Reserve

Board may prescribe (A)

to

permit u•1der specified

conditions

and for a lit1i ted period any

such

member, broker,

or

dealer

to

t1ab.tain

a

credit in i t ia l ly

extended

i:. confor::Jity rli

th

the

rules

and

regulations of

the

Federal

Raserve Board, and (B) to permit

the

e x t e ~ s i o n

or mainte

nance of credit in cases \'there tlle extension or l lD.intenn:·lce of

credi t is not for the

purpose

of purchasing

or

carrying securi

t ies or of

evading

or

circur::ventir'.g tile provisions

of paragraph

l ) of this

cuboection.

(d) I t

sl1all be

u.'1lawful for any person

not

subject

to

sub

section

(c) to

exte::J.d

or I T . . n i : . : - ~ t a i n credit or

to

arrange for the

extensio:1 or rr.aintenance

of

credi t

for

the

purpose

of

purc:1asing

or carrying D r;y

security registered

on a nn.tio:nal

securi t ies

exchange,

i:t

contravention

of

nuc:1

rules

and

regulations

as the

Federal Reserve

Board s:hall prescribe

to

prevent

the excessive

use of

credi t for the p1rrchasing

or carrying

of

or t rading in

securi t ies in

circumvention

of

the o t 1 ~ e r provisions

of this

sec

t ion. Such rules and regule1.tions may iopose upon a l l loans made

for the

purpose

of purchasing or

carrying

secuii t ies registered

on 11.ationnl

securi t ies

exchanges

l imitations sir::ilar

to those

imposed upon members, br Jkers, or dealel S by subsection (c) of

this s.:;ction

and tl1.:: rul..:Js

a:' .d

rogulations t:1orcunder.

This

subsection

and

th0 rules

and

regulr,tions tl1oreu.nder s ~ w l l

not

apply (A) to a loan made

by

a

person

not in

tho

o r d i : ~ r y

course

of

his

business,

(::S)

to

a

loan

on a:;1 exempted

security,

(C)

to

a loan

to

a

dealer to aid

in t ~ 1 e

finv.r-"ci>1g of the distr ibut ion

of

securi t ies

to

custor.:1ers ;.1ot through the ocdiur: of a nrttio;.1al

securi t ies e:-:char.ge,

(D)

to a loo •1

by

a

ba.:;.1k

::>: a security other

than

an

equity security, or

(E)

to such

otJ:1er

lonns

as the

Federal

Reserve Boo.rd sr.all, by such rules

and

regul:.:ttions

as

i t r:ny

deen

neccssarJ or apllropriate in t: .i.e public

i::.terest

or for the protec

t ion of

inventors,

exempt, ei ther

u:1c;:;aditi·:J:1<:1.lly

or

upon

specified

terr.:1s

and co::di t ions or

for

stated periods,

fron:

the

operation

of

th is subsectio:1 and t:1e rulas and.

regtJ.lations

tl:ere-..:Lnder.

(e)

Tl:e

provisio:1s of t::is

section

or t ~ w

l-,1les a::.d regu.l12tions

there;.lndor

s1m.ll

::1ot apply on or bef.ore July

1,

193

7,

to ru.1:;

loa:1

or e x t e n s i o ~ :

of

cradit na.de prior J t:1e e'1act::".e::t of t:11s t i t l e

or to t:1e ;nc..L:..te:.1:::.;<ce, rNJ.ewal, Qr extension

of

o.ny

sue} .;.

loan

or

credit

, except t the

ext

e:1t t : 1 . : ~ . t the Feder:.:.l

:de serve

3oc..rd

i"Jc'lY

by

rules and

regulations prescribe

as

:·wcessary

to p r e v e 1 ~ t

the

cir

c u ~ : : v e : l t i o n

of

the provisio:1s

of

Li s sectio::

or

the rules

and regu

lat ions

thereu:1dcr b ~ r l '.eans

of

ili thd.rnwals

of

fuD.cls or

securi t ies,

substi tutions of securi t ies, or

adLUtio::-nl

purchases or by any

other

d.evice.

SEC. 8

I t

shall

be

u:1lm;fd

for a ~ ~ , .

ner.'lber

of

a

1."-.tioilB.l

securi t ies

e;:c::nnge, or ar.;J

br·)ker or

c.lenl0r >tho

t ransacts

a

business

in

sec1Jri

t ias

thr:mg::.

the

mecliur:;

of

a::.y

such

ne::foer,

direct ly or indirect ly--

74

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-

21 -

(a) To borrow

in the ordinary course of business

as a

broker

or dealer

on any security

(other than an

exempted security)

registered on a natiorMal

securities

exchange

except

1)

from or

through a

member

bank

of

the

Federal

Reserve System,

(2)

from

any

nonmember

b r u ~ which

shall

have filed

with the Federal

Re

serve

Board

an

agreement, which is

s t i l l in force

and which is

in the form prescribed by the Board, undertaldng to comply

with

al l provisions of this Act, the Federal Reserve Act, as amended,

and

the

Banking Act

of

1933, which

are

applicable

to member

banks

and which

relate to

the use of credit to finance transactions in

securities,

and

with

such rules

and

regulations aa

may

be pre-

scribed lYUrsuant

to

such

provisions of

law

or for the

purpose

of

preventing

e v s i ~ n s

thereof, or 3) in accordance with such rules

and

regulations as

the Federal Reserve Board may prescribe

to

permit loans

between

3UCll

m ~ m e r s

and/or brokers

and/or

dealers,

or to

per;:·,it

loans to

meet emergency

needs,

Any such agreement

fi led with the Federal Reserve Board shall be subject to termina-

tion

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 provisions of

law

or rules

or

regulations;

and, for a:Jy willful violation of

such

agreement, such bank

s mll

be subject

to

the

penalties pro-

vided

for

violations of

rules and

regulations prescribed

under

this t i t le The provisions

of

sections 21 and 25 of this t i t le

shall apply in the

case

of such

proceeding or order of the

Federal

Reserve Board in

the same

manner

as

such provisions

apply

in the

case

of

proceedings and

orders of the

Commission.

(c)

In contravention of

such rules and regulations as the Com-

mission

shall

prescribe

for the

protection

of

investors to hypothecate

or arrange

for

the ~ y p o t h e c t i o n of

any

securities carried for

the

account

of

any

c u s t o ~ e r

under circumstances

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

CO'" L':lingled with the securities

of any

person

other

than a bona fide customer, or 3)

that

will pennit such securities

to

be

hypothecated, or subjected

to

any

l ien

or

claim of

the

pledgee,

for a sum in excess of

the

aggregate i n d e b t e ~ ~ e s s of such customers

in respect of

such

securities.

(d)

To

lend or arra11ge for the lending of IDlY securities carried

for

the

account

of

any customer without

the

written consent

of

such

customer,

75

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- 22 -

SEC.

17. b) .A.ey broker,

dealer,

or other p e r s o ~ l extending

credit who is subject

to

the rules and r e ~ J l a t i o n o prescribed

by the Federal Reserve Board pursuant

to this t i t le

sl1all make

such reports to the Board

as

i t

may

require

as necessary or

ap.

propriate to

enable

i t

to perform

the

functions conferred

upon

i t by this t i t le . If

~

such broker, dealer, or other person

shall

fail

to

make any such

report

or fail

to

furnish

full

in-

formation therein, or,

i f

in

the judgment of the Board i t 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

i t to obtain

the required

information.

SEC. 23. a) The C o ~ ~ i s s i o n and

the

Federal Reserve Board

shall each have power to ma :;;e such rulea and

regulations

as

may

be

necessary

for

the

execution

of

the

functions vested

in

them

by this t i t le and

may for

such purpose

classify

issuers, securi-

t ies, exchanges, and

other

persons or matters

within

their

respective jurisdictions.

SEC.

29. a)

r ~

condition, stipulation, or provision bind-

ing any person to waive compliance with any

provision

of

this

t i t le 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 provision of

this t i t le or of any rule or regulation thereunder, and every

contract

including

any

contract

for

l isting

a

security

on

an

exchcnge) heretofore

or

hereafter

made the

performance of which

involves the violation ot

or

the continuance of any relation-

ship

or practice in violation of, an.y provision of this t i t le

or any

rule

or regu.lD,tion

therounder,

shall be void 1) as

regards

the rights

of an person who,

in

violation of ~ such

provision, rule, or regulntion,

shall

hD.ve ronde or engaged in

the performance of rozy such contract, ru1.d (

2)

ns regards the

rights of any

person

who, not being a

party to

such

contract,

shall

hnve acquired a :1y right thereunder with actual knowledge

of

the

facts

by

reasOl l.

of which

the

mal::ing

or

performance

of

such

contrnct

was

in

violc.tion of

any such provisio::J.,

rule

or

regule.t iol l.

c) Nothing in tl1is

t i t le shall

be construed 1)

to

affect

the validity

of

n ~ r loan or

extension

of

credit

or any exten-

sion or renewal thereof) made or of an;;; l ien created prior or

subsequent to the

e n a c t ~ e n t

of this t i t le m1less at the time

of the making of such loan or e:x:toncion of credit

or extension

or renewal thereof)

or the

creating

of

such l ien, the

person

making such loan or e:ctension of credit

or

ext ens ion or renewal

thereof) or acquiring

s u e ~

l ien shall have

actual

l<nowledge of

facts by reason of \7hich

the

mnking of such loan or

extension

of credit or

extension :Jr

renewal thereof) or the acquisition

of

such

lien is

a

violation

of

the

provisions of

this

t i t le

or

any

rule

or

regulation

thereunder, or (2)

to afford

c defense

76

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- 3

to

the

collection

of

any

debt

or obligation or the enforcement

of any l ien by any

p e r s ~ n

t7ho

shall

have acquired such debt,

obligation, or

l ien

in good fai th

for

value and

without

actual

knowledge

of

the

violation

of

any

provision of

this

t i t l e

or

any

rule or regulation

thereunder

affecting the

1

g l i t ~ r

of

such debt, obligation, or l ien,

SEC.

32.

Any

person

who

willful ly

violates any

provision

of this t i t l e

or e.ny

rule or

regulation

thereunder

the

viola-

t ion

of ·j1hich

i s

made unlawful

or

the observance . f

which

is

required

under the terms of th is t i t l e or any person who

willfully

and knowingly makes,

or

causes

to

be made, any state-

ment in any

application, report,

or document required to be

f i led

under

this

t i t l e or any rule or regulation

thereunder,

which statement \7as false or

misleading

rlith respect to any

material

fact,

sl1all upon

conviction

be

fined

not

more

than

10,000, or impris:med ~ o t more than tuo

years, or

both, except

that t7hen such

person

is a:: . exchange, fine not exceeding

500,000 may

be

imposed; but no person

shall be subject to

imprisonnent under

tl1is

section

for

tlw

vhla t ion

of any rule

or

regulatio:::J.

i he proves that he

had

no

knoY:ledge

of such

rule

or

regulation.

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SUPPL:lil1 ENT TO pGULATI

O

[

ISSUED BY THE BOAR:> OF GOVERNORS

OF

THE FEDERAL

RESERVE SYSTEM

Effective

1936

M a x i r : m 1 ; ~ loan values of regis tered

egui ty

securi t ies for

O u r p ~

of

Regulation

[

Pursuant

to the provisions

of

sect ion 7

of the

Securit ies

E x c h ~ g e

Act

of 1934 and

section

4 of i t s Regulation U, the

Board.

of Governors of the

Federal

Reserve S y s t e ~ hereby

prescribes the following

~ a x i ~ ~

loan

values

of registered equity securi t ies for loans

regulated ~ d c r

R e ~ l a t i o n

U:

1

General r ~ P a r c . i n g maximuTrt loan values.

-

Except as -provided

in

para.graph

(2)

of

this

supl?lel :lent,

the "llaximu'" l loan

value of

a

regis-

tered

equi ty

security securing

a

regulated l o ~ n shal l

be

whichever

i s

the higher

of:

(A) percent

of

the current market

price of

the

sccuri ty; r

(B)

100

percent

of the lewest

market price

of

the

fJecuri

d u r i n ~

the

period of

36

calendar

months

i.mr:-:ediatoly

prior

to

the f i r s t day of

the

current ~ o n t h , but not more

thEm

7 parcent

of

tl1e current market :price:

Provided,

That

unt i l July 1, 1936, for

the

purpose

of

this

r ~ ~ l l l a t i o n the

lowest price a t ~ h i c h a security has sold on or af te r

July 1,

1933, but pr ior

to

the f i r s t day of the current

month,

shal l

be considered as the lowest market

price

of such security

during the preceding 36 calendar

months:

and Provided, That

the lowest r : ~ a r k e t price which could be used

under

the pro

visions of

this

re,;ulation during any

calendar month may

be

used during the

f i r s t 7

calendar

d?.ys

of the succeecing

calendar month.

( 2) Special maxim::1 .1.Q.crl velue for rehy-,>Othecated securi t ies . - The

m a x i ~ u m

loan

value of

a

re[·;istered equity security which is ref\.ypothecated

by a

broker or dealer

s-u.bject

to the

conc.itions

specified

in

subsection

(c)

of sect ion 4 of Regulation V, shal l

be ___

percent of

the current

market price of the

securi ty .

78

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79

SU?PLEMEUT

TO R E G U L A T I 0 1 ~

[

ISSU3:D 3Y

'l'HE :SOARD OF

GOVERNORS OF

T'HE

FEDERAL

RESERV8

SYST:: :M

Effective

' 1936

M.:tx.irum

loan.

values of regis tered equi

;:r

securi t ieo for

purposes 2 [ Reg lb.tion

I

Ptu·su;mt to the provisions

of r.ection

7 of tl:1e Securi t ies E x c ~ : : : t n g e Act

of

19:34 ancl

section

4

of i t s Regulation

U,

the

:Board.

of Governors of the

F e c ~ e r c : l R e ~ e r v e System

l 1 e r e b ~ r

prescribes the follovrL1g

maxinn:l l

lo.-w.'l

values

of regis tered equi securi t ies

for loans

reguln.ted under Re:;ulation U:

1) General rognrdi;lb_ r ~ 1 a x i n u m values. - Except as 1')rovided

in

-parasTaph (2)

of thil' SU1')Dleraent, the maxir mm loa,.'l value

of .'l registered

cquit:r

securit;r securing n

regulated

loan s h ~ l l be percent of the low-

est m.:trl-::et " )rice of the

securitv

during

the

period of ca.lendar

months

i"-1me<' .iatel;· "r)rior to

the f i r s t

cla;·

of the current

rnonth:

Pro_vided, Tb

ctt the

low.sst

T : l c . r ~ - : e t

nrice rrhich

could

be usocl.. under t:1is nrovinion during ~ m y

calenclar rr.onth ma;:r :1lso be used during the f i r s t seven

calendar

d a ~ r s of

tile su.cceed.ing cal ~ v 1 a r month.

( 2)

S r . : > e d ~ a l

mnxirrg£ lo:-t.'l value

for

reh'I'\)Othec:t.ted

secur i t ies .

-

The :':ulxili.1U:.,

lo'l...'l value

of r:. regis tered equi

t:r securi

t:r which i s

r e l : ~ r p o t h e

catec".. b ~ i

a

broker

or de;\.ler subject

to

the conditions

speci f ied

in sub-

s e c t i o ; ~

(c)

of sectio 1

4

of

Ro§:Uleltion U, sh:-).11 be

_ p e r c e n t of the

c u r r e ~ 1

t 1:nrket

uri

co

of

the 3ecuri

ty .

frsbog_mim_v44_0048.pdf

Documents

federal reserve bank

board of governors

direction of board

board of goverlwrs

federal reserve systeu

federal reserve agents

ge regulation u

tentative supplement