C.F.R. » Title 12 » CHAPTER II—FEDERAL RESERVE SYSTEM › SUBCHAPTER A—BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM › PART 220—CREDIT BY BROKERS AND DEALERS (REGULATION T)

12 C.F.R. § 220.6

Good faith account

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In a good faith account, a creditor may effect or finance customer transactions in accordance with the following provisions:

(a) Securities entitled to good faith margin—(1) Permissible transactions. A creditor may effect and finance transactions involving the buying, carrying, or trading of any security entitled to “good faith” margin as set forth in § 220.12 (the Supplement).

(2) Required margin. The required margin is set forth in § 220.12 (the Supplement).

(3) Satisfaction of margin. Required margin may be satisfied by a transfer from the special memorandum account or by a deposit of cash, securities entitled to “good faith” margin as set forth in § 220.12 (the Supplement), any other asset that is not a security, or any combination thereof. An asset that is not a security shall have a margin value determined by the creditor in good faith.

(b) Arbitrage. A creditor may effect and finance for any customer bona fide arbitrage transactions. For the purpose of this section, the term “bona fide arbitrage” means:

(1) A purchase or sale of a security in one market together with an offsetting sale or purchase of the same security in a different market at as nearly the same time as practicable for the purpose of taking advantage of a difference in prices in the two markets; or

(2) A purchase of a security which is, without restriction other than the payment of money, exchangeable or convertible within 90 calendar days of the purchase into a second security together with an offsetting sale of the second security at or about the same time, for the purpose of taking advantage of a concurrent disparity in the prices of the two securities.

(c) “Prime broker” transactions. A creditor may effect transactions for a customer as part of a “prime broker” arrangement in conformity with SEC guidelines.

(d) Credit to ESOPs. A creditor may extend and maintain credit to employee stock ownership plans without regard to the other provisions of this part.

(e) Nonpurpose credit. (1) A creditor may:

(i) Effect and carry transactions in commodities;

(ii) Effect and carry transactions in foreign exchange;

(iii) Extend and maintain secured or unsecured nonpurpose credit, subject to the requirements of paragraph (e)(2) of this section.

(2) Every extension of credit, except as provided in paragraphs (e)(1)(i) and (e)(1)(ii) of this section, shall be deemed to be purpose credit unless, prior to extending the credit, the creditor accepts in good faith from the customer a written statement that it is not purpose credit. The statement shall conform to the requirements established by the Board.

[Reg. T, 63 FR 2824, Jan. 16, 1998]
Notes of Decisions
Cited in 3 cases, 1959–1973 · leading case: Clara Goldenberg, Formerly Clara Littman v. Bache & Co., Bache & Co. v. Clara Goldenberg, Formerly Clara Littman, 270 F.2d 675 (5th Cir. 1959).
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Clara Goldenberg, Formerly Clara Littman v. Bache & Co., Bache & Co. v. Clara Goldenberg, Formerly Clara Littman, 270 F.2d 675 (5th Cir. 1959). · cites it 2× ““A creditor may permit interest, dividends or other distributions received by the creditor with respect to securities in a general account to be withdrawn from the account only on condition that the adjusted debit balance of the account does not exceed the maximum loan value of…”
Norman A. Landry v. Hemphill, Noyes & Co., Norman A. Landry v. Hemphill, Noyes & Co., 473 F.2d 365 (1st Cir. 1973). “Innocent Mistakes — Actual Knowledge Defendant requested an instruction based on § 6(v) of Regulation T, 12 C. F.R. 220.6(k), 4 that it was not liable for any losses suffered by plaintiff as a result of overextensions of credit made innocently and without any purpose to violate…”
Gregory-Massari, Inc. v. Purkitt, 1 Cal. App. 3d 968 (Cal. Ct. App. 1969). “There is no merit in plaintiff’s contention that its delay in selling the stock was excusable under 12 C.F.R. 220.6 (k) which provides that innocent clerical mistakes of a certain nature would not constitute a violation of Regulation T.”
— 12 C.F.R. § 220.6(g) — 1 case
Clara Goldenberg, Formerly Clara Littman v. Bache & Co., Bache & Co. v. Clara Goldenberg, Formerly Clara Littman, 270 F.2d 675 (5th Cir. 1959). ““A creditor may permit interest, dividends or other distributions received by the creditor with respect to securities in a general account to be withdrawn from the account only on condition that the adjusted debit balance of the account does not exceed the maximum loan value of…”
— 12 C.F.R. § 220.6(k) — 1 case
Norman A. Landry v. Hemphill, Noyes & Co., Norman A. Landry v. Hemphill, Noyes & Co., 473 F.2d 365 (1st Cir. 1973). “Innocent Mistakes — Actual Knowledge Defendant requested an instruction based on § 6(v) of Regulation T, 12 C. F.R. 220.6(k), 4 that it was not liable for any losses suffered by plaintiff as a result of overextensions of credit made innocently and without any purpose to violate…”
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