George T. Simon, Esq.
Foley & Lardner
One IBM Plaza, Suite 3300
330 North Wabash Avenue
Chicago, Illinois 60611

Dear Mr. Simon:

This responds to your letter of March 4, 1996, concerning the Midwest Clearing Corporation (MCC). Although MCC is a clearing agency registered with the Securities and Exchange Commission (SEC) pursuant to section 17A of the Securities Exchange Act of 1934, it ceased providing securities clearing services in January of this year.

MCC has become a member of the National Securities Clearing Corporation (NSCC) so that it may sponsor certain specialists, market makers, and floor brokers of the Chicago Stock Exchange who are not members of any registered clearing agency other than MCC, thus giving these professionals access to the clearing services of NSCC. The obligations of these sponsored participants to NSCC are guaranteed by MCC. In the event that a sponsored participant defaults on its obligations to MCC, MCC is nonetheless obligated to pay NSCC for settlement of the trade.

MCC has established or will establish a line of credit from a bank to alleviate any short-term liquidity problem resulting for a sponsored participant's default. If the line of credit is used, the securities held by NSCC on MCC's behalf which the defaulting participant failed to pay for would be used to secure the credit. MCC would repay the loan from amounts paid by the sponsored participant or proceeds received by promptly selling the securities as described in MCC's rules.

You seek confirmation that a bank may extend credit in such a situation in excess of the fifty percent margin requirement found in the Supplement to Regulation U, pursuant to the exception in section 221.6(f) of the regulation. Section 221.6(f) of Regulation U pen-nits the extension of secured purpose credit without regard to limitations in the Supplement if the credit is extended to temporarily finance the purchase or sale of securities for prompt delivery, will be repaid in the ordinary course of business upon completion of the transaction, and is not extended to a borrower who has purchased securities in a Regulation T account. Board staff has previously confirmed that this section may be relied on to cover similar bank loans to NSCC (see the Federal Reserve Regulatory Service 5-884.68). We are of the view that a bank making a loan to MCC under the facts described above may also rely on section 220.6(f) of Regulation U. This is a staff opinion only, as the matter has not been presented to the Board for its consideration.

Yours truly,

(signed) Scott Holz

Scott Holz