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January 6, 2000

Mr. Mark R. Grewe
Schroder & Co. Inc.
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016

Dear Mr. Grewe:

This is in response to your letter of December 28, 1999, concerning the use of a cash account under Regulation T (12 CFR 220).

We understand the facts to be as follows. A customer has a cash account with fully-paid securities and no cash. On trade date, the customer instructs the creditor to sell the securities. Later on the same trade date the customer instructs the creditor to repurchase the same issue of securities for the same cost.

Each transaction effected in a cash account must be permissible under section 220.8(a) of Regulation T. The sale is permissible under section 220.8(a)(2)(i) of Regulation T which allows a creditor to sell a security for a customer if "the security is held in the account." The purchase is permissible under section 220.8(a)(1)(ii), which allows a creditor to purchase a security for a customer if "the creditor accepts in good faith the customer's agreement that the customer will promptly make full cash payment for the security or asset before selling it and does not contemplate selling it prior to making such payment." You believe that under Regulation T the customer should be deemed a "day trader." You further believe that to avoid the imposition of a "90 day freeze" pursuant to section 220.8(c), Regulation T requires the customer to pay in full for the purchase with new funds rather than applying the proceeds of the sale of the fully-paid securities. The term "day trader" does not appear in Regulation T and Board staff believes that the customer is not required to pay for the purchase with new funds if the securities are not resold prior to the settlement date. According to section 220.8(c)(1), the 90 day freeze is triggered "if a nonexempted security in the account is sold or delivered to another broker or dealer without having been previously paid for in full by the customer." The customer in your example has not engaged in this activity.

Yours truly,

(Signed) Scott Holz

Scott Holz

Senior Counsel

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2000 Margin Requirements