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January 7, 2000

Mr. George Simon
Foley & Lardner
One IBM Plaza
330 North Wabash Avenue, Suite 3300
Chicago, Illinois 60611-3608

Dear Mr. Simon:

This is in response to your letter of December 17, 1999, concerning the use of a cash account under the Board's Regulation T (12 CFR 220.8).

Your letter describes a customer who engages in four transactions on a single day. At the beginning of the day, the customer's cash balance in the account is $10,000. First, the customer purchases $10,000 worth of stock in Company A. The customer subsequently sells the Company A stock and buys $10,000 worth of stock in Company B. Before the end of the day, the customer sells all of the Company B stock. The customer does not withdraw any cash from the account prior to settlement date.

Permissible transactions for a cash account are described in section 220.8(a). The purchase of Company A stock is permissible under section 220.8(a)(1)(i) because the account contains sufficient funds to pay for the stock on trade date. The subsequent purchase of Company B stock on the same day cannot be made pursuant to section 220.8(a)(1)(i) because the cash balance in the account has been set aside pursuant to section 220.8(a)(1)(i) to pay for the purchase of the stock of Company A and no additional cash has been received. Consequently, the purchase of Company B stock must be made pursuant to section 220.8(a)(1)(ii), which does not require the account to hold sufficient funds on trade date, but does require the creditor to accept in good faith the customer's agreement that the customer will make full cash payment for the security or asset before selling it and does not contemplate selling it prior to making such payment.

Since the customer is selling the stock of Company B on the same day it is purchased (which is before settlement date for the purchase), the creditor's good faith acceptance of the customer's agreement required by section 220.8(a)(1)(ii) would be called into question. Although a one-time sale of a security in the cash account before settlement date without full cash payment may not itself be a violation of Regulation T, the creditor must exercise increasing caution in accepting subsequent purchases pursuant to 220.8(a)(1)(ii). Within a reasonable time the creditor must inform the customer that it may not purchase securities in the cash account in reliance on section 220.8(a)(1)(ii) if the customer intends to sell them before making full cash payment for them. The alternatives for such a customer include reliance on section 220.8(a)(1)(i), if sufficient cash is held in the account on trade date, or use of a margin account, which provides for netting of all trades effected on a single day (see section 220.4(c)(1)).

Yours truly,

(Signed) Scott Holz

Scott Holz

Senior Counsel

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2000 Margin Requirements