Legal Interpretations
Margin Requirements - 2003 Letters
May 12, 2003
Letter concerning the application of Regulation T to trading in a cash account. Board staff explained that Regulation T permits a customer who has sufficient funds in a cash account on trade date to purchase securities and resell them at any time. A customer who does not have sufficient funds in the account on trade date may purchase securities with the understanding that the securities will not be sold before being paid for in full. "Sufficient funds" does not include sales proceeds that have not yet been received. Board staff explained that Regulation T requires a customer to wait until proceeds from the sale of a security have been received in the cash account (which is typically three days) before reinvesting the proceeds only if the customer is unwilling to agree that he does not intend to sell the new security before paying for it with settled funds.
April 11, 2003
Letter to Mr. Paul R. Greenwood assessing the possible status of a firm as an "exempted borrower," as defined in section 220.2 of Regulation T or section 221.2 of Regulation U. The firm, which is a member of the New York Stock Exchange, engages in both index arbitrage and spread trading transactions. Board staff expressed the view that revenue derived from the spread trading, as described by the firm, would count as eligible revenue for purposes of the safe harbor in the definition. However, Board staff was unable to conclude that the revenue from the index arbitrage trading, as described by the firm, could qualify as revenue that would make the firm eligible to claim the status of an "exempted borrower."