1 See Memorandum to SEC Rules Committee No. 78-95, dated June 29, 1995.
December 22, 1995
TO: SEC RULES COMMITTEE No. 132-95
RE: PROPOSED AMENDMENTS TO REGULATION U
______________________________________________________________________________
The Federal Reserve Board recently issued a proposal to amend Regulation U, “Credit by Banks
for the Purpose of Purchasing or Carrying Margin Stocks.” Certain of the proposed amendments would
conform Regulation U to changes recently proposed for Regulation T (which governs extensions of
credit by brokers and dealers). One such change concerns the loan value of securities issued by a money
market fund.1 A copy of the proposal is attached.
Regulation U currently provides that where a bank makes a loan that is secured by margin stock,
the maximum loan value of such stock is 50 percent of its market value. The definition of “margin
stock” includes (with certain exceptions) securities issued by a registered investment company. Under
the proposal, the definition of margin stock would be amended to exclude securities issued by a
registered investment company if it is “a money market fund in compliance with all applicable
requirements of SEC Rule 2a-7.” As a result, the maximum loan value of such securities would be their
“good faith loan value” (typically, greater than 50 percent of market value). The proposal also would
add to Regulation U the definition of “cash equivalent” in the proposed amendments to Regulation T.
That definition includes, among other things, securities issued by money market funds.
Comments on the proposal must be filed by February 15, 1996. If there are any issues you
would like the Institute to consider addressing in a comment letter, please contact me at (202) 326-5822
by Friday, January 19.
Frances M. Stadler
Associate Counsel
Attachment