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Margin Requirements
1998 Letters
September 14, 1998
To Mr. Craig Kline, regarding the applicability of Regulation X (12 CFR 224) to the purchase by a foreign corporation (Company A) of a US corporation (Company B), where Company A will borrow funds from a foreign lender and pledge the assets of Company B as collateral. Company A will effect the purchase though a US subsidiary that has been newly organized solely for this purpose. Because Company A is not a US person, or a foreign person controlled by a US person, Regulation X will apply only if Company A is acting on behalf of, or in conjunction with, US persons. A 1980 staff opinion (FRRS 5-982.1) stated that, in similar circumstances, a foreign corporation's use of a US subsidiary that is a "shell corporation" would not cause the foreign corporation to become subject to Regulation X.

April 17, 1998
To Mr. Gilbert T. Schwartz concerning the ability of a bank under Regulation U (12 CFR 221) to extend credit against an investor's margin account maintained at a broker-dealer when the credit is used to meet the short sale margin requirements of Regulation T (12 CFR 220). The collateral proposed to be used by the bank for the short sale is the same collateral that is proposed to be used by the broker-dealer. While this does not violate the express language of the Board's margin regulations, it would not be permitted under either Regulation T or Regulation U if the investor were dealing with just one lender. For this reason, Board staff believes the transaction is structured to evade the Board's margin regulations.

April 8, 1998
To Ms. Marilyn Mooney, concerning the application of Regulation U (12 CFR 221) to a purpose credit secured by margin stock. Staff disagreed with the assertion that, because a loan not secured by margin stock is not subject to Regulation U, release of all margin stock presently securing a purpose credit, as part of a renegotiation of the loan, would not be covered by section 221.3(f). Staff believes that the release of the margin stock would be a withdrawal under section 221.3(f), and thus the lender may not permit the withdrawal to cause the credit to exceed the maximum loan value of the collateral.

March 18, 1998
To Mr. Bradley Smith regarding the application of the definition of "margin stock" in the Regulation U (221.2) to the "Ordinary Shares of 10p each" of The Energy Group PLC. Because these shares are registered on the New York Stock Exchange, they are margin stock for purposes of Regulation U.

January 8, 1998
To the American Stock Exchange (AMEX) stating that the new issue of securities known as DIAMONDS are margin securities for the purposes of Regulation T (12 CFR 220) and they are "exchangeable or convertible within 90 days without restriction other than the payment of money" into the stocks that make up the Dow Jones Industrial Average, and therefore meet the 100 percent margin requirements of 12 CFR 220.12(c). Additionally, the rules concerning permitted offsets for specialists in DIAMONDS established by the AMEX would be without regard to Regulation T.

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