1 See Memorandum to Closed-End Fund Members No. 10-96, SEC Rules Members No. 24-96 and Unit Investment Trust Members No. 14-96, dated May 13, 1996.
2 Some non-equity securities already are eligible for "good faith" loan value under Regulation T. In addition to "exempted securities" (which
encompass government and municipal securities, among other things), these include debt securities listed on a U.S. securities exchange,
investment grade debt securities and debt securities rated less than investment grade that are registered with the SEC and have an original
principal amount of not less than $25 million.
May 15, 1996
TO: CLOSED-END FUND COMMITTEE No. 14-96
SEC RULES COMMITTEE No. 41-96
UNIT INVESTMENT TRUST COMMITTEE No. 23-96
RE: POSSIBLE COMMENTS ON PROPOSED AMENDMENTS TO REGULATION T
______________________________________________________________________________
The Federal Reserve Board recently adopted amendments to Regulation T, which
governs extensions of credit by brokers and dealers. Among other things, the amendments
increase the amount of credit that a broker or dealer may extend to customers holding securities
issued by certain registered investment companies.1 Specifically, as the Institute had
recommended in a 1992 submission to the Board, the amendments allow brokers and dealers to
give "good faith" loan value to securities issued by an "exempted securities mutual fund"
(defined as any registered investment company that has at least 95% of its assets continuously
invested in "exempted securities," as defined in Section 3(a)(12) of the Securities Exchange Act
of 1934). Previously, while "exempted securities" were eligible for "good faith" loan value, all
investment company securities were treated as "margin equity securities," with a loan value of
the greater of 50% of their market value or the amount set by the regulatory authority where
the trade occurred. The recent amendments thus eliminated a disparity that had existed
between the amount that a customer owning "exempted securities" could borrow from a broker
or dealer and the amount that a customer owning an interest in a pool of the same securities
(i.e., an investment company) could borrow.
At the same time as it adopted the recent amendments to Regulation T, the Board
proposed additional amendments to Regulations T, U (extensions of credit by banks) and G
(extensions of credit by lenders other than banks and broker-dealers). A copy of the proposing
release is attached. One of the proposed amendments to Regulation T would provide that all
non-equity securities are eligible for "good faith" loan value.2 This proposal could present an opportunity for the
Institute to recommend that securities issued by a
registered investment company that has at least 95% of its assets continuously invested in any type(s) of non-equity securities (i.e., not just exempted securities)
also should receive "good faith" loan value.
Comments on the proposed amendments must be filed by July 1, 1996. If you would like the Institute to consider making a recommendation along
the lines noted above, please call me at (202) 326-5822 by Wednesday, May 29th.
Frances M. Stadler
Associate Counsel
Attachment