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Authority, Purpose, and Scope
Reg. § 220.1 (a) Authority and purpose.
Regulation T (this part) is issued by the Board of Governors
of the Federal Reserve System (the Board) pursuant to the Securities
Exchange Act of 1934 (the Act) (15 U.S.C.§78a et seq.). Its
principal purpose is to regulate extensions of credit by and
to brokers and dealers; it also covers related transactions
within the Board's authority under the Act. It imposes, among
other obligations, initial margin requirements and payment rules
on securities transactions.
(b) Scope.
(1) This part provides a margin account and seven special
purpose accounts in which to record all financial relations
between a customer and a creditor. Any transaction not specifically
permitted in a special account shall be recorded in a margin
account.
(2) This part does not preclude any exchange, national securities
association, or creditor from imposing additional requirements
or taking action for its own protection.
Definitions
Reg.§220.2
The terms used in this part have the meanings given them in
section 3(a) of the Act or as defined in this section.
(a) "Credit balance" means the cash amount
due the customer in a margin account after debiting amounts
transferred to the special memorandum account.
(b) "Creditor" means any broker or dealer (as defined
in sections 3(a)(4) and 3(a)(5) of the Act), any member of
a national securities exchange, or any person associated with
a broker or dealer (as defined in section 3(a)(18) of the
Act), except for business entities controlling or under common
control with the creditor.
(c) "Customer" includes:
(1) any person or persons acting jointly:
(i) to or for whom a creditor extends, arranges,
or maintains any credit; of
(ii) who would be considered a customer of the creditor
according to the ordinary usage of the trade;
(2) any partner in a firm who would be considered a customer
of the firm absent with partnership relationship; and
(3) any joint venture in which a creditor participates and
which would be considered a customer of the creditor it
the creditor were not a participant.
(d) "Debit balance" means the cash amount owed to the
creditor in a margin account after debiting amounts transferred
to the special memorandum account.
(e) "Delivery against payment," "Payment against delivery,"
or a "C.O.D. transaction" refers to an arrangement under which
a creditor and a customer agree that the creditor will deliver
to or accept from, the customer, or the customer's agent,
a security against full payment of the purchase price.
(f) "Equity" means the total current market value of
security positions held in the margin account, plus any credit
balance less the debit balance in the margin account.
(g) "Escrow agreement" means any agreement issued in
connection with a call or put option under which a bank, holding
the underlying security, foreign currency, certificate of
deposit, or required cash, is obligated to deliver to the
creditor (in the case of a call option) or accept from the
creditor (in the case of a put option) the underlying security,
foreign currency, or certificate of deposit against payment
of the exercise price upon exercise of the call or put.
(h) "Examining authority" means:
(1) the national securities exchange or other
self-regulatory organization of which a creditor is a member;
or
(2) if not a member of any such self-regulatory organization,
the Regional Office of the Securities and Exchange Commission
(SEC) where the creditor has its principal place of business;
or
(3) if a member of more than one self-regulatory organization,
the organization designated by the SEC as the examining
authority for the creditor.
(i) Foreign margin stock means:
(1) a foreign security that is an equity security
and that appears on the Board's periodically published List
of Foreign Margin Stocks based on information submitted
by a self-regulatory organization under procedures approved
by the Board; or
(2) A foreign security that is a debt security convertible
into a margin security.
(j) Foreign security means a security issued in a jurisdiction
other than the United States.
(k) "Good faith margin" means the amount of margin
which a creditor, exercising sound credit judgment, would
customarily require for a specified security position and
which is established without regard to the customer's other
assets or securities positions held in connection with unrelated
transactions.
(l) "In or at the money" means the current market price
of the underlying security is not more than one standard exercise
interval below (with respect to a call option) or above (with
respect to a put option) the exercise price of the option.
(m) "In the money" means the current market price of
the underlying security is not below (with respect to a call
option) or above (with respect to as put option) the exercise
price of the option.
(n) "Margin call" means a demand by a creditor to a
customer for a deposit of additional cash or securities to
eliminate or reduce a margin deficiency as required under
this part.
(o) "Margin deficiency" means the amount by which the
required margin exceeds the equity in the margin account.
(p) "Margin excess" means the amount by which the equity
in the margin account exceeds the required margin. When the
margin excess is represented by securities, the current value
of the securities is subject to the percentages set forth
in section 220.18 (the Supplement).
(q) "Margin security" means
(1) any registered security;
(2) any OTC margin stock;
(3) any OTC margin bond;
(4) any OTC security designated as qualified for trading
in the National Market System under a designation plan approved
by the Securities and Exchange Commission (NMS) security;
or
(5) any security issued by either an open-end investment
company or unit investment trust which is registered under
section 8 of the Investment Company Act of 1940 (15 U.S.C.
80a-8)
(6) Any foreign margin stock.
(r) "Non-exempted security" means any security other
than an exempted security (as defined in section 3(a) (12)
of the Act).
(s) "Nonmember bank" means a bank that is not a member
of the Federal Reserve System.
(t) "OTC margin bond" means:
(1)> A debt security not traded on a national
securities exchange which meets all of the following requirements:
- At the time of the original issue, a principal amount
of not less than $25,000,000 of the issue was outstanding;
- The issue was registered under section 5 of the Securities
Act of 1933 (15 U.S.C. Section 77e) and the issuer either
files periodic reports pursuant to section 13(a) or
15(d) of the Act or is an insurance company which meets
all of the conditions specified in section 12(g) of
the Act; and
- At the time of the extension of credit, the creditor
has a reasonable basis for believing that the issuer
is not in default on interest or principal payments;
or
(2) A private mortgage pass-through security (not
guaranteed by an agency of the U.S. government) meeting
all of the following requirements:
- An aggregate principal amount of not less than $25,000,000
(which may be issued in series) was issued pursuant
to a registration statement filed with the SEC under
section 5 of the Securities Act of 1933;
- At the time of the credit extension the creditor has
a reasonable basis for believing that mortgage interest,
principal payment and other distributions are being
passed through as required and that the servicing agent
is meeting its material obligations under the terms
of the offering; or
- a "mortgage-related security" as defined in Section
3(a)(41) of the Act
(3) A debt security issued or guaranteed as a general
obligation by the government of a foreign country, its provinces
or states, or cities, or a supranational entity, if at the
time of the extension of credit one of the following is
rated in one of the two highest rating categories by a nationally
recognized rating organization:
- the issue
- the issuer or guarantor (implicitly), or
- other outstanding unsecured long-term debt securities
issued or guaranteed by the government or entity; or
(4) A foreign security that is a non-convertible
debt security that meets all of the following requirements:
- At the time of original issue, a principal amount
of at least $100,000,000 was outstanding;
- At the time of the extension of credit, the creditor
has a reasonable basis for believing that the issuer
is not in default on interest or principal payments,
and
- At the time of the extension of credit, the issue
is rated in one of the two highest rating categories
by a nationally recognized statistical rating organization,
except that an issue that has not been rated as of the
effective date of this provision shall be considered
an "OTC margin bond" if a subsequent unsecured issue
of at least $100,000,000 of the same issuer is rated
in one of the two highest rating categories by a nationally
recognized statistical rating organization.
(u) "OTC margin stock" means any security not traded
on a national securities exchange that the Board has determined
has the degree of national investor interest, the depth and
breadth of market, the availability of information respecting
the security and its issuer, and the character and permanence
of the issuer to warrant being treated like an equity security
traded on a national securities exchange. An OTC stock is
not considered to be an "OTC margin stock" unless it appears
on the Board's periodically published list of OTC margin stocks.
(v) "Overlying option" means:
- a put option purchased or a call option written against
a long position in an underlying security in the specialist
record in section 220.12(b); or
- a call option purchased or a put option written against
a shot position in an underlying security in the specialist
record in section 220.12(b).
(w) "Purpose credit" means credit for the purpose of:
- buying, carrying, or trading in securities; or
- buying or carrying any part of an investment contract
security which shall be deemed credit for the purpose
of buying or carrying the entire security.
(x) "Registered security" means any security that:
- is registered on a national securities exchange; or
- has unlisted trading privileges on a national securities
exchange.
(y) "Short call or short put" means a call option or
a put option that is issued, endorsed, or guaranteed in or
for an account.
- A short call obligates the customer to sell the underlying
security, foreign currency, or certificate of deposit
at the exercise price upon receipt of an exercise notice
at any time prior to the expiration date of the option.
- A short put obligates the customer to purchase the underlying
security, foreign currency, or certificate of deposit
at the exercise price upon receipt of an exercise notice
at any time prior to the expiration date of the option.
- A short call or a short put on stock index options obligates
the customer to pay the holder of an "in the money" long
put or call who has exercised the option the cash difference
between the exercise price and the current assigned value
of the index as established by the option contract.
(z) "Specialist joint account" means an account which,
by written agreement, provides for the commingling of the
security positions of the participants and a sharing of profits
and losses from the account on some predetermined ratio. (aa)
"Underlying security" means the security that will be delivered
upon exercise of an option.
General Provisions
Regulation §220.3.
(a) Records. The creditor shall maintain
a record for each account showing the full details of all
transactions.
(b) Separation of accounts. Except as provided for
in the margin account and the special memorandum account,
the requirements of an account may not be met by considering
items in any other account. If withdrawals of cash or securities
are permitted under the regulation, written entries shall
be made when cash or securities are used for purposes of meeting
requirements in another account.
(c) Maintenance of credit. Except as prohibited by
this part, any credit initially extended in compliance with
this part may be maintained regardless of:
- reductions in the customer's equity resulting from changes
in market prices;
- any security in an account ceasing to be margin or exempted;
or
- any change in the margin requirements prescribed under
this part.
(d) Guarantee of accounts. No guarantee of a customer's
account shall be given any effect for purposes of this part.
(e) Receipt of funds or securities.
- A creditor, acting in good faith, may accept as immediate
payment:
(i) cash or any check, draft, or order payable
on presentation; or (ii) any security with sight draft
attached.
- A creditor may treat a security, check or draft as received
upon written notification from another creditor that the
specified security, check, or draft has been sent.
- Upon notification that a check, draft, or order has
been dishonored or when securities have not been received
within a reasonable time, the creditor shall take the
action required by this part when payment or securities
are not received on time.
- A creditor may accept, in lieu of securities, a properly
executed exercise notice for a stock option issued by
the customer's employer and instructions to the issuer
to deliver the resulting stock to the creditor. Prior
to acceptance, the creditor must verify that the issuer
will deliver the securities promptly and the customer
must designate the account into which the securities are
to be deposited.
(f) Exchange of securities.
- To enable a customer to participate in an offer to exchange
securities which is made to all holders of an issue of
securities, a creditor may submit for exchange any securities
held in a margin account, without regard to the other
provisions of this part, provided the consideration received
is deposited into the account.
- If a non-margin, non-exempted security is acquired in
exchange for a margin security, its retention, withdrawal,
or sale within 60 days following its acquisition shall
be treated as if the security is a margin security.
(g) Valuing securities: The current market value of
a security shall be determined as follows:
- Throughout the day of the purchase or sale of a security,
the creditor shall use the security's total cost of purchase
or the net proceeds of its sale including any commissions
charged.
- At any other time, the creditor shall use the closing
sale price of the security on the preceding business day,
as shown by any regularly published reporting or quotation
service. If there is no closing price, the creditor may
use any reasonable estimate of the market value of the
security as of the close of business on the preceding
business day.
(h) Innocent mistakes. If any failure to comply with
this part results from a mistake made in good faith in executing
a transaction or calculating the amount of margin, the creditor
shall not be deemed in violation of this part if, promptly
after the discovery of the mistake, the creditor takes appropriate
corrective action.
(i) Variable annuity contracts issued by insurance
companies. Any insurance company that issues or sells variable
annuity contracts or engages in a general securities business
as a broker or dealer shall be subject to this part only for
transactions in connection with those activities. Extensions
of credit associated with conventional lending practices of
insurance companies are subject to Part 207 of this Chapter.
Margin Account
Reg. § 220.4
(a) Margin transactions.
(1) All transactions not specifically authorized
for inclusion in another account shall be recorded in the
margin account.
(2) A creditor may establish separate margin accounts for
the same person to:
- clear transactions though other creditors if the transactions
are effected by separate creditors; or
- provide one or more accounts over which the creditor
or a third party investment adviser has investment discretion's.
(b) Required margin. The required margin for each position
in securities is set forth in section 220.18 (the Supplement)
and is subject to the exceptions and special provisions contained
in section 220.5 (Margin Account Exceptions and Special provisions).
(c) When additional margin is required.
(1) Computing deficiency. All transactions on
the same day shall be combined to determine whether additional
margin is required by the creditor. For the purpose of computing
equity in an account, security positions are established
or eliminated and a credit or debit created on the trade
date of a security transaction. Additional margin is required
on any day when the day's transactions create or increase
a margin deficiency in the account and shall be for the
amount of the margin deficiency. To the extent that debits
in a margin account are denominated in foreign currency
secured by specifically identified foreign margin securities
as provided in section 220.5(g), each foreign currency debit
position shall be considered separately for purposes of
computing equity in the margin account either in United
States dollars or in any other specific foreign currency.
(2) Satisfaction of deficiency. The additional required
margin may be satisfied by a transfer from the special memorandum
account or by a deposit of cash, margin securities, exempted
securities, or any combination thereof.
(3) Time limits.
- A margin call shall be satisfied within 5 business
days after the margin deficiency was created or increased.
- The 5 day period may be extended for on or more limited
periods upon application by the creditor to a self-regulatory
organization or national securities association unless
the organization or association believes that the creditor
is not acting in good faith or that the creditor has
not sufficiently determined that exceptional circumstances
warrant such action. Applications shall be filed and
acted upon prior to the end of the 5 day period or the
expiration of any subsequent extension. However, application
filed by firms having no direct electronic access to
the organization of association may be accepted as timely
filed if postmarked by midnight of the last day of the
5 day period or any subsequent extension.
(4) Satisfaction restriction. Any transaction, position,
or deposit that is used to satisfy one requirement under
this part shall be unavailable to satisfy any other requirement.
(d) Liquidation in lieu of deposit. If any margin call
is not met in full within the required time, the creditor
shall liquidate securities sufficient to meet the margin call
or to eliminate any margin deficiency existing on the day
such liquidation is required, whichever is less. if the margin
deficiency created or increased is $500 or less, no action
need be taken by the creditor.
(e) Withdrawals of cash or securities. (1) Cash or
securities may be withdrawn from an account, except if:
- additional cash or securities are required to be deposited
into the account for a transaction on the same or a previous
day; or
- the withdrawal, together with other transactions, deposits,
and withdrawals on the same day, would create or increase
a margin deficiency.
- Margin excess may be withdrawn or may be transferred
to the special memorandum account (section 220.6) by making
a single entry to that account which will represent a
debit to the margin account and a credit to the special
memorandum account.
- If a creditor does not receive a distribution of cash
or securities which is payable with respect to any security
in a margin account on the day it is payable and withdrawal
would not be permitted under this paragraph, a withdrawal
transaction shall be deemed to have occurred on the day
the distribution is payable.
(f) Interest, service charges, etc.
(1) Without regard to the other provisions of
this section, the creditor, in its usual practice, may debit
the following items to a margin account if they are considered
in calculating the balance of such account;
- interest charged on credit maintained in the margin
account;
- premiums on securities borrowed in connection with
short sales or to effect delivery;
- dividends, interest, or other distributions due on
borrowed securities;
- communication or shipping charges with respect to
transactions in the margin account; and
- any other service charges which the creditor may impose.
(2) A creditor may permit interest, dividends, or other
distributions credited to a margin account to be withdrawn
from the account if:
- the withdrawal does not create or increase a margin
deficiency in the account; or
- the current market value of any securities withdrawn
does not exceed 10 percent of the current market value
of the security with respect to which they were distributed.
Margin Account Exceptions and Special Provisions
Reg. § 220.5
(a) Unissued securities.
- The required margin on a net long or net short commitment
in an unissued security is the margin that would be required
if the security were an issued margin security, plus any
unrealized loss on the commitment or less any unrealized
gain.
- Margin is not required on a net short commitment in
unissued securities when the account contains the related
issued securities, nor for any net short of long position
in unissued exempted securities.
(b) Short sales.
- The required margin for the short sale of a security
shall be the amount set forth in § 220.18 (the Supplement).
- A short sale "against the box" shall be treated as a
long sale for the purpose of computing the equity and
the required margin.
(c) Options.
- Margin or cover for options on exempted debt securities,
certificates of deposit, stock indices, or securities
exchange traded options on foreign currencies. The required
margin for each transaction involving any short put or
short call on an exempted debt security, certificate of
deposit, stock index, or foreign currency (if the option
is traded on a securities exchange), shall be the amount
or positions in lieu of margin set forth in § 220.18 (the
Supplement).
- Margin for options on equity securities. The required
margin for each transaction involving any short put or
short call on an equity security shall be the amount set
forth in section 220.18 (the Supplement).
- Cover or positions in lieu of margin. No margin is required
for an option written on an equity security position when
the account holds any of the following:
- the underlying security in the case of a short call,
or a short position in the underlying security in the
case of a short put;
- securities immediately convertible into or exchangeable
for the underlying security without the payment of money
in the case of a short call, if the right to convert
or exchange does not expire on or before the expiration
date of the short call;
- an escrow agreement for the underlying security or
foreign exchange (in the case of a short call) or cash
(in the case of a short put);
- a long call on the same numbers of shares of the same
underlying security if the long call does not expire
before the expiration date of the short call, and if
the amount (if any), by which the exercise price of
the short put exceeds the exercise price of the long
put is deposited in the account;
- a warrant to purchase the underlying security, in
the case of a short call, if the warrant does not expire
on or before the expiration date of the short call,
and if the amount (if any), by which the exercise price
of the warrant exceeds the exercise price of the short
call is deposited in the account. A warrant used in
lieu of the required margin under this provision shall
contribute no equity to the account.
- Adjustments.
(i) When a short position held in the account
serves in lieu of the required margin for a short put,
the amount prescribed by paragraph (c)(2) of this section
as the amount to be added to the required margin in respect
of short sales, shall be increased by any unrealized loss
on the position.
(ii) When a security held in the account serves in lieu
of the required margin for a short call, the security
shall be valued at no greater than the exercise price
of the short call.
- Straddles. When both a short put and a short call are
in a margin account on the same number of shares of the
same underlying security, the required margin shall be
the margin on either the short put or the short call,
whichever is greater, plus any unrealized loss on the
other option.
- Exclusive designation. The customer may designate at
the time the option order is entered which security position
held in the account is to serve in lieu of the required
margin, if such service is offered by the creditor; or
the customer may have a standing agreement with the creditor
as to the method to be used for determining on any given
day which security position will be used in lieu of the
margin to support an option transaction. Any security
held in the account which serves in lieu of the required
margin for a short put or a short call shall be unavailable
to support any other option transaction in the account.
(d) Account of partners. If a partner of the creditor
has a margin account with the creditor, the creditor shall
disregard the partner's financial relations with the firm
(as shown in the partner's capital and ordinary drawing accounts)
in calculating the margin or equity of the partner's margin
account.
(e) Contribution to a joint venture. If margin account
is the account of a joint venture in which the creditor participates,
any interest of the creditor in the joint account in excess
of the interest which the creditor would have on the basis
of its right to share profits shall be treated as an extension
of credit to the joint account and shall be margined as such.
(f) Transfer of accounts.
(1) A margin account that is transferred from
one creditor to another may be treated as if it had been
maintained by the transferee from the date of its origin,
if the transferee accepts, in good faith, a signed statement
of the transferor (or, if that is not practicable, of the
customer), that any margin call issued under this part has
been satisfied.
(2) A margin account that is transferred from one customer
to another as part of a transaction, not undertaken to avoid
the requirements of this part, may be treated as if it had
been maintained for the transferee from the date of its
origin, if the creditor accepts in good faith and keeps
with the transferee account a signed statement of the transferor
describing the circumstances for the transfer.
(g) Credit denominated in foreign currency, A creditor
may extend credit denominated in a foreign currency secured
by foreign margin securities denominated or traded in the
same foreign currency and specifically identified on the creditor's
books and records as securing the foreign currency debit.
Special Memorandum Account
Reg. § 220.6
(a) A special memorandum account (SMA) may
be maintained in conjunction with a margin account. A single
entry amount may be used to represent both a credit to the
SMA and a debit to the margin account. A transfer between
the two accounts may be effected by an increase or reduction
in the entry. When computing the equity in a margin account,
the single entry shall be considered as a debit in the margin
account. A payment to the customer or on the customer's behalf
or a transfer to any of the customer's other accounts from
the SMA reduces the single entry amount.
(b) The SMA may contain the following entries:
- dividend and interest payments;
- cash not required by this part, including cash deposited
to meet a maintenance margin call or to meet any requirement
of a self-regulatory organization that is not imposed
by this part;
- proceeds of a sale of securities or cash no longer required
on any expired or liquidated security position that may
be withdrawn under section 220.4(e) of this part, and;
- margin excess transferred from the margin account under
§ 220.4(e)(2) of this part.
Arbitrage Account
Reg. § 220.7
In an arbitrage account a creditor may effect and finance for
any customer bona fide arbitrage transactions. For the purpose
of this section, the term "bona fide arbitrage" means:
(1) a purchase or sale of a security in one market
together with an offsetting sale or purchase of the same security
in a different market at as nearly the same time as practicable
for the purpose of taking advantage of a difference in prices
in the two markets; or
(2) a purchase of a security which is, without restriction
other than the payment of money, exchangeable or convertible
within 90 calendar days of the purchase into a second security
together with an offsetting sale of the second security at
or about the same time, for the purpose of taking advantage
of a concurrent disparity in the prices of the two securities.
Cash Account
Reg. § 220.8
(a) Permissible transactions. In a cash
account, a creditor may:
(1) buy for or sell to any customer any security
if
(i) there are sufficient funds in the account;
or
(ii) the creditor accepts in good faith the customer's
agreement that the customer will promptly make full cash
payment for the security before selling it and does not
contemplate selling it prior to making such payment;
(2) buy from or sell for any customer any security if:
(i) the security is held in the account; or
(ii) the creditor accept in good faith the customer's
statement that the security is owned by the customer or
the customer's principal, and that it will be promptly
deposited in the account;
(3) issue, endorse, or guarantee an option for any customer
if:
(i) in the case of a call option, the underlying
security (or a security immediately convertible into the
underlying security, without the payment of money) is
held in or purchased for the account on the same day,
and the option premium is held in the account until cash
payment for the underlying or convertible security is
received: or
(ii) in the case of a put option, the creditor obtains
cash in an amount equal to the exercise price or holds
in the account any of the following instruments with a
current market value at least equal to the exercise price
and with one year or less to maturity: securities issued
or guaranteed by the United States or its agencies, negotiable
band certificates of deposit, or bankers acceptances issued
by banking institutions in the United States and payable
in the United States.
(4) use an escrow agreement in lieu of the cash or underlying
security position if:
(i) in the case of a call or put, the creditor
is advised by the customer that the required securities
or cash are held by a bank and the creditor independently
verifies that an appropriate escrow agreement will be
delivered by the bank promptly.
(b) Time periods for payment; cancellation or liquidation--
(1) Full cash payment. A creditor shall obtain
full cash payment from customer purchases--
(i) within five business days of the date;
(A) any nonexempted security was purchased;
(B) any unissued security was made available by the
issuer for delivery to purchasers;
(C) any "when distributed" security was distributed
under a published plan;
(D) a security owned by the customer has matured or
has been redeemed and a new refunding security of the
same issuer has been purchased by the customer, provided:
(a) the customer purchased the new security no more
than 35 calendar days prior to the date of maturity
or redemption of the old security;
(b) the customer is entitled to the proceeds of the
redemption; and
(c) the delayed payment does not exceed 103 percent
of the proceeds of the old security.
(ii) in the case of purchase of a foreign security, within
five business days of the trade date or the date on which
settlement is required to occur by the rules of the foreign
securities market, provided this period does not exceed
the maximum time permitted by this part for delivery against
payment transactions.
(1) Delivery against payment. If a creditor
purchases for or sells to a customer a security in a
delivery against payment transaction, the creditor shall
have up to 35 calendar days to obtain payment if delivery
of the security is delayed due to the mechanics of the
transaction and is not related to the customer's willingness
or ability to pay.
(2) Shipment of securities, extension. If any shipment
of securities is incidental to consummation of a transaction,
a creditor may extend the five business day period by
the number of days required for shipment, but may not
by more than five business days.
(3) Cancellation; liquidation; minimum amount. A creditor
shall promptly cancel or otherwise liquidate a transaction
or any part of a transaction for which the customer
has not made full cash payment within the required time.
A creditor may, at its option, disregard any sum due
from the customer not exceeding $500.
(c) 90 day freeze.
- If a nonexempted security in the account is sold or
delivered to another broker or dealer without having been
previously paid for in full by the customer, the privilege
of delaying payment beyond the trade date shall be withdrawn
for 90 calendar days following the date of sale of the
security. Cancellation of the transaction other than to
correct an error shall constitute a sale.
- The 90 day freeze shall not apply if; (i) within five
business days of the trade date, full payment is received
or any check or draft in payment has cleared and the proceeds
from the sale are not withdrawn prior to such payment
or check clearance; or (ii) the purchased security was
delivered to another broker or dealer for deposit in a
cash account which holds sufficient funds to pay for the
security. The creditor may rely on a written statement
accepted in good faith from the other broker or dealer
that sufficient funds are held in the other cash account.
(d) Extension of time periods, transfers.
(1) Unless a self-regulatory organization or association believes
that the creditor is not acting in good faith or that the
creditor has not sufficiently determined that exceptional
circumstances warrant such action, it may, upon application
by the creditor:
(i) extend any period specified in paragraph
(b) of this section;
(ii) authorize transfer to another account of any transaction
involving the purchase of a margin or exempted security;
or
(iii) grant a waiver from the 90 day freeze.
(2) Applications shall be filed and acted upon prior to the
end of the five day period or the expiration of any subsequent
extension. However, an application filed from firms having
no direct electronic access to the exchange or association
may be accepted as timely filed if it is postmarked no later
than midnight of the last day of the five day period or any
subsequent extension.
Nonsecurities Credit Account
Reg. § 220.9
(a) In a nonsecurities credit account a creditor
may:
(1) Effect and carry transactions in commodities;
(2) Effect and carry transactions in foreign exchange;
(3) Extend and maintain secured or unsecured nonpurpose
credit, subject to the requirements of paragraph (b) of
this section.
(4) extend and maintain credit to employee stock ownership
plans without regard to the other sections of this part.
(b) Every extension of credit, exempt as provided in paragraphs
(a)(1) and (2) of this section shall be deemed to be purpose
credit unless, prior to extending the credit, the creditor
accepts in good faith from the customer a written statement
that it is not purpose credit. This statement shall conform
to the requirements established by the Board. To accept the
customer's statement in good faith, the creditor shall be
aware of the circumstances surrounding the extension of credit
and shall be satisfied that the statement is truthful.
Omnibus Account
Reg. § 220.10
(a) In an omnibus account, a creditor may effect and
finance transactions for a broker or dealer who is registered
with the SEC under section 15 of the Act and who gives the creditor
written notice that:
(1) all securities will be for the account of customers
of the broker or dealer; and
(2) any short sales effected will be short sales made on behalf
of the customers of the broker of dealer other than partners.
(b) The written notice required by paragraph (a) shall
conform to any SEC rule on the hypothecation of customers' securities
by brokers or dealers.
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