[Federal Register Volume 67, Number 193 (Friday, October 4, 2002)]
[Proposed Rules]
[Pages 62214-62215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25227]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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  Federal Register / Vol. 67, No. 193 / Friday, October 4, 2002 / 
Proposed Rules  

[[Page 62214]]



FEDERAL RESERVE SYSTEM

12 CFR Part 220

[Regulation T; Docket No. R-1131]


Credit by Brokers and Dealers; Security Futures

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board of Governors is publishing for comment proposed 
amendments to Regulation T to clarify the treatment of stock futures 
held by customers at a security futures intermediary. The proposed 
amendments would permit the withdrawal of cash from an otherwise 
restricted margin account if required to satisfy maintenance margin 
requirements. The proposed amendments also would explicitly permit 
stock futures to be carried in a good faith account as is currently 
done with other futures.

DATES: Comments on the proposed rule must be received not later than 
November 15, 2002.

ADDRESSES: Comments should refer to docket number R-1131 and should be 
sent to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC, 20551 or mailed electronically to 
[email protected]. Comments addressed to Ms. Johnson 
also may be delivered between 8:45 a.m. and 5:15 p.m. to the Board's 
mail facility in the west courtyard of the Eccles Building, located on 
21st Street between Constitution Avenue and C Street, NW. Members of 
the public may inspect comments in accordance with the Board's Rules 
Regarding the Availability of Information (12 CFR part 261) in Room MP-
500 of the Martin Building on weekdays between 9 a.m. and 5 p.m.

FOR FURTHER INFORMATION CONTACT: Scott Holz, Senior Counsel (202/452-
2966) or Thomas Scanlon, Senior Attorney (202/452-3594), Legal 
Division; for users of Telecommunication Devices for the Deaf (TDD) 
only, contact 202/263-4869.

SUPPLEMENTARY INFORMATION:

1. Background

    The Commodity Futures Modernization Act of 2000\1\ (``CFMA'') 
lifted the ban on futures on single stocks and narrow-based stock 
indexes, as well as options on these futures (hereinafter ``stock 
futures'').\2\ The CFMA required the Board either to adopt margin rules 
for stock futures or to delegate its authority jointly to the Commodity 
Futures Trading Commission and Securities and Exchange Commission. The 
Board delegated its authority to the Commissions in a letter dated 
March 6, 2001. The Commissions published proposed margin rules for 
public comment in the Federal Register on October 4, 2001\3\ and 
published joint final margin rules in the Federal Register on August 
14, 2002.\4\
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    \1\ Pub. L. 106-554, Appendix E.
    \2\ The CFTC and SEC have adopted rules for futures on single 
stocks and narrow-based stock indexes. The CFMA does not authorize 
the trading of options on these futures before late 2003. The Board 
is today proposing amendments that would cover all stock future 
products, including options. If the CFTC and SEC adopt additional 
margin rules for stock futures options (under the authority 
delegated by the Board in 2001), the Board may wish to propose 
further amendments to Regulation T.
    \3\ 66 FR 50720.
    \4\ 67 FR 53146.
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    Brokers and dealers are generally subject to the Board's Regulation 
T \5\ when they effect transactions for customers. Although the Board 
has delegated its authority over margin requirements for stock futures 
to the Commissions, these transactions will be effected in one or more 
securities accounts described in Regulation T. The Board is proposing 
amendments to Regulation T to eliminate potential conflicts between the 
regulation and the Commissions' joint margin rules. We invite your 
comments on all aspects of the proposal.
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    \5\ 12 CFR part 220.
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2. Stock Futures held in a Securities Margin Account

A. Margin Requirements for Stock Futures

    Margin requirements for stock futures are established by the 
Commissions' joint margin rules, and stock futures may be subject to 
additional requirements of the self-regulatory organizations (SROs). 
The Board is proposing to amend section 220.4(b)(1) of Regulation T 
(``Margin Account `` Applicability) to state explicitly that stock 
futures are not subject to the margin requirements of Regulation T 
found in section 220.12 (``Supplement: margin requirements'').

B. Withdrawals To Meet Variation Settlement Obligations

    Although positions in futures and securities are marked-to-market 
daily to determine if additional margin is required, the procedures for 
the two markets differ. With futures contracts, the daily marked-to-
market amount, known as ``variation settlement'' is paid by customers 
with positions that have declined in value to customers on the other 
side of the contract whose positions have risen in value. With 
securities, customers whose positions have declined in value are not 
required to post additional collateral unless the decline is large 
enough to trigger the maintenance margin requirements of the SROs. The 
securities margining system has nothing comparable to the payment that 
occurs between customers under the futures margining system.
    Section 220.4(e) of Regulation T prohibits a customer from 
withdrawing cash or securities from a margin account if there is an 
outstanding Regulation T margin call or if the withdrawal, together 
with other transactions on the same day, would create or increase a 
margin deficiency. The Board believes this restriction should not apply 
to a customer who is required to make a variation settlement payment 
under the Commissions' joint margin rules or SRO margin rules. The 
Board is therefore proposing an exception to the withdrawal provision 
for such customers. Withdrawals permitted under the proposed amendment 
would not be made available to the customer whose account is debited as 
the funds will be used exclusively to pay the customer on the other 
side of the stock futures contract.

3. Stock Futures Held in a Futures Account

    Stock futures are securities under the Securities Exchange Act of 
1934 (``SEA'') and contracts of sale for future delivery under the 
Commodities

[[Page 62215]]

Exchange Act (``CEA''). The Commissions'' joint margin rules provide 
that stock futures may be held in either a securities or a futures 
account. Under Regulation T, stock futures transactions may be effected 
and carried in a margin account because they are securities under the 
SEA. Under Regulation T, transactions involving contracts of sale for 
future delivery are recorded in the good faith account,\6\ which is not 
subject to the restrictions of the margin account. The Board is 
proposing to amend section 220.6(e) of Regulation T to provide 
explicitly that stock futures may be effected and carried in the good 
faith account.
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    \6\ Section 220.6(e).
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Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule 
under the authority delegated to the Board by the Office of Management 
and Budget. No collections of information pursuant to the Paperwork 
Reduction Act are contained in the proposed rule.

Regulatory Flexibility Act

    The Board certifies that the proposed amendments, if adopted, will 
not have a significant economic impact on a substantial number of small 
entities. The only substantive effect of the proposed amendments is to 
eliminate a potential conflict with other federal margin regulations 
promulgated by the CFTC and SEC.

List of Subjects in 12 CFR Part 220

    Brokers, Reporting and recordkeeping requirements, Securities.

Authority and Issuance

    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 220 to read as follows:

PART 220--CREDIT BY BROKERS AND DEALERS (REGULATION T)

    1. The authority citation for Part 220 continues to read as 
follows:

    Authority: 15 U.S.C. 78c, 78g, 78q, and 78w.
    2. Section 220.4 is amended as follows:
    a. By revising paragraph (b)(1); and
    b. By adding a new paragraph (e)(4).
    The revision and addition read as follows:


Sec.  220.4  Margin account.

* * * * *
    (b) Required margin.--(1) Applicability. The required margin for 
each long or short position in securities (except for security futures 
products) is set forth in Sec.  220.12 (the Supplement) and is subject 
to the following exceptions and special provisions.
* * * * *
    (e) Withdrawals of cash or securities. * * *
    (4) The provisions of this paragraph (e) shall not apply to a 
withdrawal of cash to meet variation settlement obligations for 
security futures products held in a margin account.
* * * * *
    3. Section 220.6(e)(1) introductory text and (e)(1)(i) are revised 
to read as follows:


Sec.  220.6  Good faith account.

* * * * *
    (e) Nonpurpose credit and security futures products. (1) A creditor 
may:
    (i) Effect and carry transactions in commodities, including 
transactions in security futures products;
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, September 30, 2002.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 02-25227 Filed 10-3-02; 8:45 am]
BILLING CODE 6210-01-P