David T. Russoff, Esq.
Foley & Lardner
One IBM Plaza
Suite 3300
339 North Wabash Avenue
Chicago, Illinois 60611-3608

Dear Mr. Russoff:

This responds to your letter of March 28, 1997, concerning the application of Regulation T (12 CFR 220) to a broker-dealer who accepts a customer's bank-issued credit card as payment for the purchase of securities. As noted in your letter, recent Regulation T amendments affecting the ability of a broker-dealer to arrange for the extension of credit have changed the analysis concerning the use of credit cards by customers of broker-dealers.

Regulation T prohibits a broker-dealer from extending unsecured credit to purchase securities. In addition, before July 1, 1996, section 220.13 of Regulation T ("Arranging for loans by others") generally prohibited a broker-dealer from arranging for a lender not subject to Regulation T to extend credit that the broker-dealer could not itself extend under Regulation T. Since the use of a credit card usually results in an unsecured loan to the cardholder, broker-dealers were prohibited from accepting credit cards for securities transactions based on the view that this would involve an "arranging" by the broker-dealer of credit that did not comply with Regulation T.

Section 220.13 of Regulation T was amended, effective July 1, 1996, to allow a broker-dealer to arrange for the extension of credit, without regard to its ability to extend such credit under Regulation T, on any basis not prohibited under Regulations G and U. Regulations G and U cover lenders other than broker-dealers and do not prohibit the extension of unsecured credit to pay for securities. Therefore, a broker-dealer is now free to accept a customer's credit card issued by a person other than a broker-dealer as payment for securities transactions. The broker-dealer is no longer prohibited from arranging for the extension of unsecured credit to purchase securities via a credit card or other method.

This is a staff opinion only, as the matter has not been presented to the Board, and is limited to the facts provided. Different facts could compel a different conclusion. If you have any questions, please contact the undersigned at (202) 452-2966.

Yours truly,

(signed) Scott Holz

Scott Holz