Circular
Securities Credit Transactions
June 12, 1996
Circular No. 10855

-Regulation T Amendments to Reduce Regulatory Burden
-Proposed Amendments to Regulations G, T, and U

Comments due July 1

To All Depository Institutions, and Others Concerned in the Second Federal Reserve District:

The following statement was issued by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board has announced a final rule along with a request for comment on a proposed rule amending the Board's margin regulations.

The final rule is generally effective July 1, 1996, though certain provisions relating to options transactions become effective June 1, 1997.

Comment on the proposed amendments is requested by July 1, 1996.

The final rule constitutes some of the most significant reductions of regulatory burden on broker-dealers since 1934 by:

  • eliminating restrictions on the ability of broker-dealers to arrange for credit;
  • increasing the type and number of domestic and foreign securities that may be bought on margin and increasing the loan value of some securities that are already marginable;
  • deleting Board rules regarding options transactions in favor of the rules of the options exchanges; and,
  • reducing restrictions on transactions involving foreign persons, foreign securities, and foreign currency.

Additionally, technical changes have been made to provide clarification, update references, or restore language inadvertently deleted.

The proposed amendments would:

  • allow broker-dealers to extend good faith credit on any non-equity security rather than only those currently permitted in the Board's rules;
  • allow transactions involving non-equity securities to be effected in an account not subject to the restrictions of Regulation T's margin account;
  • remove restrictions on the ability of broker-dealers to calculate required margin for non-equity securities on a "portfolio" basis;
  • relax the Board's collateral requirements for the borrowing and lending of securities; and
  • exempt from Regulation T any credit extended abroad by a U.S. broker-dealer or foreign securities to foreign persons.

The proposal also seeks comment on whether the Board should expand the number of equity securities eligible for loan value under Regulation T, and whether the Board should amend Regulations G and U to modify their method for determining which equity securities are eligible for loan value.

More broadly, the proposal seeks comment on any other steps the Board could take to reduce the burden imposed by Regulation T, including any steps to reduce the accounting and recordkeeping aspects of the regulation that would be consistent with the purposes and requirements of the Securities and Exchange Act of 1934.

The text of the Board's official notice to amend Regulation T, as published in the Federal Register of May. Additional single copies may be obtained from the Circulars Division of this Bank.

In addition, the text of the Board's proposal to amend Regulations G, T, and U, also as published in the Federal Register of May 6. Comments thereon should be submitted by July 1, 1996 and may be sent to the Board, as specified in the notice, or, at this Bank, to HaeRan Kim, Counsel, Legal Department; Robert Toomey, Attorney, Legal Department; or Robert Guthmuller, Supervising Examiner, Financial Examination Staff.