[Federal Register Volume 63, Number 11 (Friday, January 16, 1998)]
[Proposed Rules]
[Pages 2840-2844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-885]



  Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / 
Proposed Rules  

[[Page 2840]]



FEDERAL RESERVE SYSTEM

12 CFR Parts 220, 221 and 224

[Regulations T, U and X; Docket No. R-0995]


Securities Credit Transactions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Advance notice of proposed rulemaking and request for comment.

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SUMMARY: In 1995 and 1996, the Board proposed three sets of amendments 
to its securities credit or margin regulations (Regulations G, T and 
U). These amendments were proposed in part based on a review of the 
margin regulations the Board is conducting pursuant to its internal 
policy of periodically reviewing its regulations and section 303 of the 
Riegle Community Redevelopment and Regulatory Improvement Act of 1994 
and in part on statutory amendments to the Board's margin authority 
under the Securities Exchange Act of 1934 (the '34 Act) contained in 
the National Securities Markets Improvement Act of 1996. In a separate 
document published elsewhere in today's Federal Register, the Board is 
adopting final amendments to Regulations G, T and U in response to the 
three proposals. The final amendments include the extension of 
Regulation U to cover lenders formerly subject to Regulation G and the 
elimination of Regulation G.
    In the course of the comment process for the Board's 1995-1996 
proposals, commenters raised a number of issues not addressed by the 
Board in the proposals. In order to complete the periodic review of its 
margin regulations, the Board is publishing this advance notice and 
request for comment for Regulations T, U and X. After reviewing the 
comments, the Board may issue specific proposed amendments for public 
comment.

DATES: Comments should be received by April 1, 1998.

ADDRESSES: Comments should refer to Docket No. R-0995 and may be mailed 
to William W. Wiles, Secretary, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, 
DC 20551. Comments also may be delivered to Room B-2222 of the Eccles 
Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard 
station in the Eccles Building courtyard on 20th Street, N.W. between 
Constitution Avenue and C Street, N.W. at any time. Comments received 
will be available for inspection in Room MP-500 of the Martin Building 
between 9:00 a.m. and 5:00 p.m. weekdays, except as provided in 12 CFR 
261.14 of the Board's rules regarding availability of information.

FOR FURTHER INFORMATION CONTACT: Oliver Ireland, Associate General 
Counsel (202) 452-3625; Scott Holz, Senior Attorney (202) 452-2966; or 
Jean Anderson, Staff Attorney (202) 452-2966, Legal Division; for the 
hearing impaired only, Telecommunications Device for the Deaf (TDD), 
Diane Jenkins (202) 452-3544.

SUPPLEMENTARY INFORMATION: Pursuant to its authority under sections 3, 
7, 17 and 23 of the Securities Exchange Act of 1934, the Board is 
requesting comment on its securities credit or margin regulations: 
Regulation T (``Credit by brokers and dealers''),1 
Regulation U (``Credit by banks and lenders other than brokers or 
dealers for the purpose of purchasing or carrying margin stock'') 
2 and Regulation X (``Borrowers of securities 
credit'').3 The Board is soliciting comment on all aspects 
of these regulations, including issues stemming from the consolidation 
of Regulation G into Regulation U and issues that have been raised by 
commenters in the past two years and not addressed in the Board's 
earlier amendments. The Board is soliciting comment on whether and how 
to address these issues. Any additional amendments would be proposed 
for public comment before adoption.
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    \1\ 12 CFR Part 220.
    \2\ 12 CFR Part 221.
    \3\ 12 CFR Part 224.
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Table of Contents

I. Regulation T
    A. Definitions
    1. Current market value
    2. Good faith
    3. Margin security
    B. Margin account
    1. Guarantees as collateral
    2. Cashless exercise of employee benefit securities
    C. Cash account: net settlement and free riding
    D. Lending foreign securities to foreign branches of U.S. banks
    E. Broker-dealer purchases of privately placed debt securities
    F. Presumption of purpose credit
II. Regulation U
    A. Forms
    1. Purpose statement
    2. Other forms and registration requirements
    a. Use of Regulation G forms under Regulation U
    b. Registration requirements
     (1) Dollar thresholds
     (2) Nonpurpose lenders
    B. Loan Value
    1. Options
    2. Mutual funds
    C. Exempted transactions
III. Regulation X
    A. National Securities Markets Improvement Act
    B. Periodic Review
IV. All Regulations
    A. Definition of national securities exchange
    B. Purpose statements as model forms
    C. Repurchase of securities by issuer
    D. Forward transactions

I. Regulation T

A. Definitions

1. Current Market Value
    The Board's margin requirement for an equity security is a 
percentage of the security's current market value. As a technical 
amendment contained in a separate document published elsewhere in 
today's Federal Register, the Board adopted a Regulation T definition 
of the phrase current market value that incorporates former 
Sec. 220.3(g) of Regulation T (``Valuing securities''). This definition 
is not exactly the same as the definition in Regulation U. Under the 
Regulation T definition, a broker-dealer must use the cost of a 
security or the proceeds of its sale to compute the current market 
value of a security on trade date. Under the Regulation U definition, a 
lender other than a broker-dealer extending credit on trade date may 
use either the security's cost or the closing price of the security on 
the preceding day. The Board is soliciting comment on whether the 
definitions of current market value in the two regulations should be 
harmonized.
2. Good Faith
    The Board is requesting comment on whether it should propose to 
replace the current definition of good faith found in Sec. 220.2 of 
Regulation T with a simpler, more universal definition. For example, 
the Uniform Commercial Code defines ``good faith'' in Sec. 3-103(a)(4) 
as ``honesty in fact and the observance of reasonable commercial 
standards of fair dealing.'' The Board seeks comment on whether this 
definition would be appropriate in the context of margin regulation.
3. Margin Security
    Last year, the Board amended the definition of margin security to 
include ``any debt security convertible into a margin security.'' The 
Board stated that this would mirror the treatment of convertible bonds 
in Regulations G and U. The actual language of Regulation U (which now 
covers banks and lenders formerly subject to Regulation G) is somewhat 
broader: ``any debt security convertible into a margin stock or 
carrying a warrant or right to subscribe

[[Page 2841]]

to or purchase a margin stock.'' The Board is soliciting comment on 
whether it should propose to use the same regulatory language in 
Regulation T. The Board is also soliciting comment on whether it should 
propose to further amend Regulation T's definition of margin security 
to include ``any warrant or right to subscribe to or purchase a margin 
stock,'' as this language is also found in Regulation U. Finally, the 
Board is soliciting comment on whether it should propose to broaden the 
coverage of convertible securities under the Regulation T definition of 
margin security to include any security convertible into a margin 
security. This last change would allow loan value for nonmargin equity 
securities which are convertible into a margin security.

B. Margin Account

1. Guarantees as Collateral
    Guarantees are currently given no effect for purposes of meeting 
federal margin requirements pursuant to Sec. 220.3(d) of Regulation T, 
but guaranteed accounts are permitted by the rules of some self-
regulatory organizations (SROs) 4 for maintenance margin 
purposes. These SRO rules effectively allow two or more customers with 
accounts at a single broker-dealer to ``cross-guarantee'' some or all 
of their accounts. The guarantee must be in writing and allow the 
broker-dealer to use the money and securities in the guaranteeing 
account without restriction to carry the guaranteed account or pay any 
deficit therein. The Board is soliciting comment on whether it should 
propose an amendment to Regulation T to allow broker-dealers to 
recognize guarantees to the extent permitted by their SROs.
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    \4\ The primary SROs for broker-dealers in this area are the New 
York Stock Exchange and the National Association of Securities 
Dealers.
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2. Cashless Exercise of Employee Benefit Securities
    Section 220.3(e)(4) of Regulation T was adopted in 1988 to allow 
broker-dealers to temporarily finance the exercise of their customers' 
employee stock options. This procedure has come to be known as 
``cashless exercise.'' In 1995, the Board proposed new language for 
Sec. 220.3(e)(4) to expand its coverage to other types of employee 
benefit securities, such as employee stock warrants. The proposed 
amendment, which was adopted in 1996 substantially in the form 
proposed, changed the reference in Sec. 220.3(e)(4) of Regulation T 
from ``a stock option issued by the customer's employer'' to securities 
received ``pursuant to an employee benefit plan registered on SEC Form 
S-8.'' After adoption of the amendment, the Board received several 
comments which noted that the amended provision in some respects covers 
fewer securities than the original version in that it no longer covered 
employee stock options not registered on SEC Form S-8. The Board is 
soliciting comment on whether it should propose further amendments to 
Sec. Sec. 220.3(e)(4) to ensure that broker-dealers may use the 
provision to help all customers who need short-term financing to 
acquire employee benefit securities. Comment is invited on whether the 
Board should define what is meant by the phrase ``employee benefit 
securities.''

C. Cash Account: Net Settlement and Free Riding

    All transactions in a margin account on a given day are combined to 
determine whether additional margin is required. In contrast, 
transactions in the cash account are generally settled on a 
transaction-by-transaction basis. Although net settlement in the cash 
account would be more efficient than current practice, the requirement 
that securities be paid for before being sold and the 90-day freeze 
5 on delaying payment beyond trade date for customers who 
have sold securities before paying therefor have been adopted to 
prevent ``free riding,'' the purchase of a security that is paid for 
with the proceeds of its sale. The Board believes that free riding 
raises supervisory as well as credit issues and is soliciting comment 
on whether it would be appropriate to modify the cash account to 
encourage efficiencies while still preventing free riding and if so, 
how. The Board is also soliciting comment on whether it should leave 
the issue of free riding to the broker-dealers' supervisory 
authorities: the Securities and Exchange Commission (SEC) and SROs. The 
Board is also soliciting comment on appropriate methods for addressing 
free riding in Regulation U.
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    \5\ See Sec. 220.8(c) of Regulation T.
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D. Lending Foreign Securities to Foreign Branches of U.S. Banks

    The Regulation T section on borrowing and lending securities 
6 was amended in 1996 to allow broker-dealers to lend most 
foreign securities to foreign persons without many of the restrictions 
applied to loans of U.S. securities. Three commenters pointed out that 
the term ``foreign persons'' does not include foreign branches of U.S. 
banks. The Board is soliciting comment on whether it should propose an 
amendment to allow foreign branches of U.S. banks to qualify as foreign 
persons for purposes of Regulation T's requirements for borrowing and 
lending equity securities.
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    \6\ Formerly Sec. 220.16, now Sec. 220.10 of Regulation T.
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E. Broker-Dealer Purchases of Privately Placed Debt Securities

    The Board views the purchase of a privately placed debt security as 
an extension of credit to the issuer. Broker-dealers who wish to 
purchase privately placed debt securities (generally for resale) whose 
proceeds will be used by the issuer to purchase or carry securities 
have been unable to do so if the debt securities are unsecured or 
secured by collateral other than margin and exempted securities because 
the Board had interpreted section 7 of the '34 Act to prohibit the 
extension of purpose credit that is unsecured or secured by collateral 
other than securities valued in accordance with Regulation T. Banks and 
persons other than broker-dealers who purchase these privately placed 
securities have not had the same problem as they have never been 
restricted in their ability to make purpose loans that are unsecured or 
secured by collateral other than securities.
    In 1990, the Board issued an interpretation of the arranging 
provision in Regulation T to address purchases by broker-dealers of 
debt securities issued pursuant to SEC Rule 144A.7 Under the 
interpretation, the purchase of a privately placed debt security whose 
proceeds will be used by the issuer to purchase, carry, or trade 
securities is permitted for a broker-dealer if the security is issued 
pursuant to SEC Rule 144A on the theory that the broker-dealer is 
arranging for the ultimate purchaser to acquire the 
security.8
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    \7\ The Board interpretation is codified at 12 CFR 220.131 and 
reprinted in the Federal Reserve Regulatory Service at 5-470.1. SEC 
Rule 144A, ``Private resales of securities to institutions'' is 
codified at 17 CFR 230.144A.
    \8\ The Board interpretation described the broker-dealer's role 
as an ``investment banking service'' because the version of 
Regulation T in effect at the time had limited exceptions to the 
general arranging prohibition. The Board has since amended the 
arranging section in Regulation T to broaden permissible activities 
and in the process has eliminated the need for a specific investment 
banking services exception.
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    The Board is soliciting comment on whether it should propose any 
amendments to Regulation T to allow broker-dealers to purchase 
privately placed securities that either comply with or are not covered 
by Regulations U and X. Possible amendments could address this issue as 
one of extending

[[Page 2842]]

rather than arranging credit and could cover debt securities beyond 
those covered in the Board's 1990 interpretation.

F. Presumption of Purpose Credit

    Section 220.6(f)(2) of Regulation T (formerly Sec. 220.9(b)) states 
that every extension of credit (aside from those effected to carry 
transactions in commodities or foreign exchange) is deemed to be 
purpose credit unless the broker-dealer obtains in good faith a written 
statement from its customer that the credit is not purpose credit. The 
Board is soliciting comment on whether it should propose to modify or 
eliminate this presumption and if so, how to assure compliance with the 
Board's margin requirements in Regulation T.

II. Regulation U

A. Forms

1. Purpose Statement
    Both Regulation G and Regulation U require lenders to obtain a 
written statement from their customers as to the purpose of a loan if 
the credit is secured by margin stock. This form is known as a 
``purpose statement'' and is designated as the FR G-3 and FR U-1, 
respectively. Although the margin requirements apply to all purpose 
loans secured by margin stock, banks are not required to obtain a 
purpose statement for loans that do not exceed $100,000. Nonbank 
lenders, who are not required to register with the Board until they 
have extended at least $200,000 in margin stock secured 
credit,9 must obtain a purpose statement for every loan they 
make after reaching the registration threshold. The Board is soliciting 
comment on whether it would be appropriate to amend Regulation U to 
provide uniform requirements for purpose statements, including possible 
elimination of the form.
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    \9\ The $200,000 threshold is based on the amount of credit 
secured by margin stock extended in any calendar quarter. Lenders 
who extend less than $200,000 in credit secured by margin stock in 
any calendar quarter are required to register with the Board if they 
have $500,000 in credit secured by margin stock outstanding during 
any calendar quarter.
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2. Other Forms and Registration Requirements
    a. Use of Regulation G forms under Regulation U: The FR G-1 
(``Registration Statement For Persons Who Extend Credit Secured by 
Margin Stock (Other Than Banks, Brokers or Dealers)''), FR G-2 
(``Deregistration Statement For Persons Registered Pursuant to 
Regulation G'') and FR G-4 (``Annual Report'') were retained as part of 
Regulation U when it was extended to cover lenders formerly subject to 
Regulation G. These forms' approval from the Office of Management and 
Budget expires on July 31, 1998. Pending review of the comments 
received in response to this request for comment, the Board intends to 
redesignate these forms as Regulation U forms and is soliciting comment 
on ways to improve the reporting requirements and eliminate unnecessary 
burden, including possible elimination of the forms.
    b. Registration requirements: The registration requirements for 
lenders formerly subject to Regulation G have been moved to 
Sec. 221.3(b) of Regulation U. Nonbank lenders who extend credit 
secured by margin stock for any purpose are required to register with 
the Federal Reserve within 30 days after any calendar quarter in which 
the lender either: (1) Extends $200,000 or more in credit secured by 
margin stock; or (2) has a total of $500,000 or more in credit secured 
by margin stock outstanding. Persons other than banks and broker-
dealers who extend securities credit below these thresholds are not 
subject to the registration requirements and are not limited by the 
Board's 50 percent margin requirement for purpose loans secured by 
margin stock.
    (1) Dollar thresholds: When Regulation G was first adopted in 1968, 
the Board established dollar thresholds for registration so that 
lenders other than banks and broker-dealers who extended small amounts 
of credit secured by margin stock would not be regulated. These 
thresholds were initially $50,000 in margin stock secured credit 
extended or arranged in one calendar quarter or $100,000 in such credit 
outstanding at any time. These thresholds were last raised in 1983 to 
$200,000 and $500,000 and the scope of the regulation was reduced at 
that time to eliminate coverage of persons who arranged, but did not 
extend, securities credit.
    The Board is soliciting comment on whether it should propose 
changes to the $200,000 and $500,000 thresholds for nonbank lenders.
    (2) Nonpurpose lenders: When Regulation G was first proposed by the 
Board in 1967, lenders other than banks and broker-dealers were to be 
subject to the regulation only if they extended or arranged purpose 
credit (which was proposed to mean credit to purchase or carry an 
exchange traded security). Regulation G lenders who extended or 
arranged nonpurpose credit would not have been required to register 
with the Federal Reserve System even if the collateral for the loan 
included exchange-traded securities. When Regulation G was adopted the 
following year, the collateral coverage of the regulation was reduced 
to eliminate debt securities but the registration requirement was 
broadened to include any lender other than a bank or broker-dealer 
involved in a loan secured by margin equity securities, regardless of 
the purpose of the loan. Although the Board was originally concerned 
with the difficulty of assuring that previously unregulated lenders 
understood the concept of ``purpose credit'' (i.e. credit for the 
purpose of purchasing or carrying securities covered by Board 
regulation), the passage of time may have reduced the need to register 
nonpurpose lenders solely to determine that the registrants are not 
extending credit that is subject to the margin requirements.
    The Board is soliciting comment on whether it should propose 
changes to the registration requirements for lenders other than banks 
and broker-dealers who do not extend purpose credit, such as 
eliminating the need for registration or establishing higher dollar 
thresholds. An example of a nonpurpose lender would be a mortgage 
finance company that extends only purchase money mortgage loans but 
occasionally takes margin stock as collateral in addition to mortgages.

B. Loan Value

1. Options
    In a separate document published elsewhere in today's Federal 
Register, the Board is eliminating the Regulation U prohibition on loan 
value for exchange-traded options. When the Board first proposed this 
change in 1995, it did not propose to remove the prohibition on loan 
value for unlisted or over-the-counter (OTC) options.10 
Since that proposal however, the Board has amended Regulation T to 
allow securities self-regulatory organizations such as the New York 
Stock Exchange to adopt SEC-approved rules granting loan value to all 
options, both exchange-traded and over-the-counter. The Board is 
soliciting comment on whether it should propose to modify the 
prohibition on loan value for OTC options currently contained in 
Regulation U.
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    \10\ Unlisted or OTC options are not margin stock as defined in 
Sec. 221.2 of Regulation U. Therefore, a loan secured by OTC options 
and other nonmargin stock collateral would not be subject to 
Regulation U. However, a purpose loan secured in part by margin 
stock (a ``mixed collateral loan'') would be subject to Regulation U 
and any OTC options that secure such a loan have no loan value under 
the current version of Regulation U.

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[[Page 2843]]

2. Mutual Funds
    Although most mutual funds are covered by the definition of margin 
stock in Regulation U, the Board has long excluded mutual funds that 
have at least 95 percent of its assets continuously invested in 
exempted securities.11 In a separate document published 
elsewhere in today's Federal Register, the Board is excluding money 
market mutual funds from the definition of margin stock in Regulation U 
as well. The Board is soliciting comment on whether it should propose 
additional exclusions from the definition of margin stock for mutual 
funds which invest almost exclusively in securities entitled to good 
faith loan value under Regulation T, such as corporate bond funds.
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    \11\ The definition of margin stock is found in Sec. 221.2 of 
Regulation U.
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C. Exempted Transactions

    The Board extended Regulation U to cover lenders formerly subject 
to Regulation G because the National Securities Market Improvement Act 
eliminated the distinction between bank and nonbank lenders with 
respect to loans to broker-dealers. The Board now permits bank and 
nonbank lenders to make loans to broker-dealers on the same basis, 
including the exemptions contained in Sec. 221.5, ``Special purpose 
loans to brokers and dealers.'' Banks are also permitted to make 
unregulated loans to persons other than broker-dealers pursuant to 
Sec. 221.6, ``Exempted transactions.'' The only one of the eight 
exemptions listed in Sec. 221.6 was contained in former Regulation G: 
loans to employee stock ownership plans (ESOPs) qualified under section 
401 of the Internal Revenue Code. This exemption, formerly found in 
Sec. 207.5(c) of Regulation G, has been retained for nonbank lenders in 
Sec. 221.4(c) of Regulation U. The Board is soliciting comment on 
whether it should propose to extend the exemptions for banks in 
Sec. 221.6 of Regulation U to nonbank lenders as well. The Board seeks 
comment on whether it should propose to consolidate the exemption for 
loans to ESOPs with loans to ``plan lenders'' as defined in 
Sec. 221.4(b) of Regulation U.

III. Regulation X

    Regulation X (``Borrowers of securities credit'') implements 
section 7(f) of the '34 Act, which applies the margin requirements to 
borrowers.12 Most of the language in Regulation X is taken 
directly from the statute. If the Board were to repeal Regulation X, 
section 7(f) would still apply to borrowers of securities credit. The 
only substantive reason for the Board's adoption of a regulation 
covering borrowers is to exercise its authority under section 7(f)(3) 
of the '34 Act to exempt persons from the application of section 7(f). 
These exemptions are found in Secs. 224.1(b)(1), (b)(2) and (b)(3) of 
Regulation X.
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    \12\ In contrast, the Board's other margin regulations were 
adopted under the authority of sections 7(c) and 7(d) of the '34 Act 
and apply to lenders of securities credit.
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A. National Securities Markets Improvement Act

    In response to the Board's request for comment on appropriate 
amendments to its margin regulations to reflect the statutory changes 
contained in NSMIA, two commenters expressed concern that foreign 
affiliates of exempt U.S. broker-dealers continue to be subject to 
Regulation X (because they are ``foreign persons controlled by a U.S. 
person'') and their borrowings therefore have to comply with Regulation 
U, while the borrowings of their parent would not be subject to Board 
regulation. The commenters urged the Board to exempt foreign broker-
dealer affiliates of exempt U.S. broker-dealers from Regulation X. The 
Board seeks comment on whether it should propose such an amendment.

B. Periodic Review

    In conjunction with its periodic review of the margin regulations, 
and the requirements of section 303 of the Riegle Community 
Redevelopment and Regulatory Improvement Act of 1994, the Board is 
requesting comment on other appropriate amendments to Regulation X to 
reduce unnecessary regulatory burden.

IV. All Regulations

A. Definition of National Securities Exchange

    The Board's margin regulations have always covered all equity 
securities registered on a national securities exchange. Although the 
phrase ``national securities exchange'' is not defined in the Board's 
margin regulations or section 3(a) of the Securities Exchange Act of 
1934,13 the Board has understood the term to mean a 
securities exchange registered with the Securities and Exchange 
Commission (SEC) under section 6 of the '34 Act (``National securities 
exchanges;'' 15 U.S.C. 78f). The Board is soliciting comment on whether 
it should propose to add a definition of the phrase ``national 
securities exchange'' into Regulations T and U.
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    \13\ Definitions found in section 3(a) of the '34 Act are 
incorporated by cross-reference in the Board's margin regulations.
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B. Purpose Statements as Model Forms

    The Board has established three purpose statements (FR G-3, FR T-4, 
and FR U-1) for the three types of lenders covered under its securities 
credit regulations. Lenders other than broker-dealers are specifically 
required by the Board's regulation to obtain the FR G-3 and FR U-1 in 
certain circumstances. However, Regulation T does not refer to the FR 
T-4 and states only that in certain circumstances a broker-dealer shall 
accept ``a written statement'' that ``shall conform to the requirements 
established by the Board.''
    The Board is requesting comment on the continuing need for purpose 
statements, the form of which is prescribed by regulation, or whether 
model forms would serve the Board's purposes, or whether the form of 
the statement should be left to the affected institution or its 
regulatory supervisors.

C. Repurchase of Securities by Issuer

    The Board held in 1962 that credit extended to an issuer to 
repurchase its own securities for immediate retirement is not purpose 
credit subject to the Board's margin requirements.14 The 
1962 interpretation states that ``[i]t should not be regarded as 
governing any other situations; for example, the interpretation does 
not deal with cases where securities are being transferred * * * to the 
issuer for a purpose other than immediate retirement. Whether the 
margin requirements are inapplicable to any such situations would 
depend upon the relevant facts of actual cases presented.'' Three 
commenters requested that this interpretation be expanded to cover all 
credit extended to an issuer to repurchase its securities. While the 
interpretation requires immediate retirement of the securities 
repurchased, this limitation can be circumvented by having the issuer 
retire the securities it repurchases and then reissue those or similar 
securities later. The Board is soliciting comment on whether it should 
propose to incorporate its 1962 interpretation into Regulations T and U 
and whether the coverage of the interpretation should be broadened.
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    \14\ 12 CFR 220.119, reprinted in the Federal Reserve Regulatory 
Service at 5-490.
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D. Forward Transactions

    Commenters in earlier dockets and members of the securities bar and 
industry have requested guidance from the Board on the proper treatment 
of forward purchases and sales of

[[Page 2844]]

securities. Forwards on nonequity and exempted securities are permitted 
in the good faith account in Regulation T and are not covered by 
Regulation U. The Board is soliciting comment on whether and how it 
should amend Regulations T and U to address transactions involving 
forward purchases and sales of equity securities.

    By order of the Board of Governors of the Federal Reserve 
System, December 18, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-885 Filed 1-15-98; 8:45 am]
BILLING CODE 6210-01-P