[Federal Register Volume 61, Number 229 (Tuesday, November 26, 1996)]
[Rules and Regulations]
[Pages 60166-60167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30004]
[[Page 60165]]
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Part IV
Federal Reserve System
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12 CFR Parts 207, 220, and 221
Securities Credit Transactions; Borrowing by Brokers and Dealers; Final
Rule and Proposed Rule
Federal Register / Vol. 61, No. 229 / Tuesday, November 26, 1996 /
Rules and Regulations
[[Page 60166]]
FEDERAL RESERVE SYSTEM
12 CFR Parts 207, 220 and 221
[Regulations G, T and U; Docket No. R-0943]
Securities Credit Transactions; Borrowing by Brokers and Dealers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interpretation.
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SUMMARY: The Board is issuing an interpretation of its margin
regulations (Regulations G, T and U) in response to the enactment of
the National Securities Markets Improvement Act of 1996 (the Markets
Improvement Act). Under the Markets Improvement Act, the Board no
longer has the authority to regulate certain loans to registered
broker-dealers unless it finds that such rules are necessary or
appropriate in the public interest or for the protection of investors.
This interpretation makes clear that the Board has not made such a
finding and that provisions in its margin regulations for which the
Board no longer has general authority are without effect. The
interpretation also identifies the regulatory provisions that the Board
has adopted to implement section 8(a) of the Securities Exchange Act of
1934 (the Exchange Act), which limits the sources of credit for broker-
dealers, and concludes that these provisions are without effect in
light of the repeal of section 8(a) contained in the Markets
Improvement Act.
EFFECTIVE DATE: November 19, 1996.
FOR FURTHER INFORMATION CONTACT: Oliver Ireland, Associate General
Counsel (202) 452-3625; Gregory Baer, Managing Senior Counsel (202)
452-3236; or Scott Holz, Senior Attorney (202) 452-2966, Legal
Division; for the hearing impaired only, Telecommunications Device for
the Deaf (TDD), Dorothea Thompson (202) 452-3544.
SUPPLEMENTARY INFORMATION: The Markets Improvement Act (Pub. L. 104-
290) affects the Board's margin authority in two ways. First, the
Markets Improvement Act amends section 7 of the Exchange Act (15 U.S.C.
78g) to exclude certain loans 1 to broker-dealers 2 from the
Board's margin setting authority. The Board is nevertheless authorized
to adopt rules and regulations covering these loans if the Board finds
such rules are ``necessary or appropriate in the public interest or for
the protection of investors.'' Second, the Markets Improvement Act
repeals section 8(a) of the Exchange Act (15 U.S.C. 78h(a)). The Board
is issuing an interpretation of Regulations G, T and U, which were
adopted under the authority of sections 7 and 8(a) of the Exchange Act,
to clarify the application of the regulations in light of the enactment
of the Markets Improvement Act. In a separate document published
elsewhere in today's Federal Register, the Board is proposing
amendments to Regulations G, T and U to implement the recent statutory
amendments and further the policies behind them.
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\1\ The excluded loans to broker-dealers are: 1. loans to
finance market making or underwriting activities, and 2. loans to
finance any activity if a ``substantial portion'' of the broker-
dealer's ``business consists of transactions with persons other than
brokers or dealers.''
\2\ The exact language in the Markets Improvement Act covers ``a
member of a national securities exchange or a registered broker or
dealer.'' Although the Exchange Act defines the terms ``broker'' and
``dealer,'' the Markets Improvement Act language is restricted to
brokers and dealers who are subject to oversight by the Securities
and Exchange Commission.
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The interpretation states that the Board has not made a finding
that it is ``necessary or appropriate in the public interest or for the
protection of investors'' to impose rules and regulations on loans to
members of a national securities exchange or registered brokers or
dealers if a substantial portion of their business consists of dealing
with persons other than brokers or dealers or the loan is to finance
their activities as a market maker or an underwriter. In other words,
the interpretation concludes that provisions of Regulations G, T and U
are without effect if the credit extended is within the new statutory
exclusion. The interpretation also identifies the provisions of the
Board's margin regulations adopted to implement section 8(a) of the
Exchange Act and concludes that they are without effect in light of the
Market Improvement Act's repeal of section 8(a).
List of Subjects in 12 CFR Parts 207, 220 and 221
Banks, banking, Brokers, Credit, Federal Reserve System, Margin,
Margin requirements, Reporting and recordkeeping requirements,
Securities.
For the reasons set out in the preamble, 12 CFR Parts 207, 220 and
221 are amended as follows:
PART 207--SECURITIES CREDIT BY PERSONS OTHER THAN BANKS, BROKERS,
OR DEALERS (REGULATION G)
1. The authority citation for Part 207 is revised to read as
follows:
Authority: 15 U.S.C. 78c, 78g, 78q, and 78w.
2. Section 207.114 is added to read as follows:
Sec. 207.114 Credit to brokers and dealers.
(a) The National Securities Markets Improvement Act of 1996 (Pub.
L. 104-290, 110 Stat. 3416) restricts the Board's margin authority by
repealing section 8(a) of the Securities Exchange Act of 1934 (the
Exchange Act) and amending section 7 of the Exchange Act (15 U.S.C.
78g) to exclude the borrowing by a member of a national securities
exchange or a registered broker or dealer ``a substantial portion of
whose business consists of transactions with persons other than brokers
or dealers'' and borrowing by a member of a national securities
exchange or a registered broker or dealer to finance its activities as
a market maker or an underwriter. Notwithstanding this exclusion, the
Board may impose such rules and regulations if it determines they are
``necessary or appropriate in the public interest or for the protection
of investors.''
(b) The Board's margin regulations, Regulations G, T and U (12 CFR
Parts 207, 220 and 221, respectively), currently contain rules
regarding loans to brokers and dealers based on former section 8(a) of
the Exchange Act and its interplay with the earlier version of section
7 of the Exchange Act, which instructed the Board to prescribe rules
and regulations with respect to the amount of credit that may be
extended on any nonexempted security.
(c) The Board has not found that it is necessary or appropriate in
the public interest or for the protection of investors to impose rules
and regulations regarding loans to brokers and dealers covered by the
National Securities Markets Improvement Act of 1996. Consequently, the
Board believes that extensions of securities credit that are
unregulated under section 7, as amended by the National Securities
Markets Improvement Act of 1996, currently are not limited by
Regulations G, T and U, notwithstanding any provisions to the contrary,
because the provisions of section 7, as amended, supersede conflicting
provisions of the Board's regulations.
(d) Section 220.15 of Regulation T (12 CFR 220.15), Sec. 221.4 of
Regulation U and the reference in Sec. 221.5(a) of Regulation U (12 CFR
221.5(a)) to ``a member bank and a nonmember bank that is in compliance
with Sec. 221.4,'' and the introductory text of Sec. 207.4 of
Regulation G (12 CFR 207.4) were all adopted by the Board to implement
the requirements of former section 8(a) of the Exchange Act. The Board
believes that these sections are without effect in
[[Page 60167]]
light of the repeal of section 8(a) of the Exchange Act. Brokers and
dealers are not restricted as to the type of lender to which they may
pledge exchange-traded equity securities as collateral for extensions
of credit. In addition, a bank, as defined in section 3 of the Exchange
Act (15 U.S.C. 78c) and the rules thereunder, may rely on Sec. 221.5 of
Regulation U (12 CFR 221.5) in making loans to brokers and dealers
without regard to membership in the Federal Reserve System or the
existence of an agreement with the Federal Reserve under former section
8(a) of the Exchange Act.
PART 220--CREDIT BY BROKERS AND DEALERS (REGULATION T)
1. The authority citation for Part 220 is revised to read as
follows:
Authority: 15 U.S.C. 78c, 78g, 78q, and 78w.
2. Section 220.132 is added to read as follows:
Sec. 220.132 Credit to brokers and dealers.
For text of this interpretation, see Sec. 207.114 of this
subchapter.
PART 221--CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING
MARGIN STOCK (REGULATION U)
1. The authority citation for Part 221 is revised to read as
follows:
Authority: 15 U.S.C. 78c, 78g, 78q, and 78w.
2. Section 221.125 is added to read as follows:
Sec. 221.125 Credit to brokers and dealers.
For text of this interpretation, see Sec. 207.114 of this
subchapter.
By order of the Board of Governors of the Federal Reserve System
Dated November 19, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-30004 Filed 11-25-96; 8:45 am]
BILLING CODE 6210-01-P