Fed Amends Regulation T

Effective November 25, 1994, the Board of Governors of the Federal Reserve System (Fed) is adopting several amendments to Regulation T (Credit by Brokers and Dealers) regarding the payment periods for securities purchases and transactions in government securities.

Payment Periods

One amendment deletes references to a specific number of days in which customers must meet initial margin calls or make full cash payment for securities purchases; instead the amendment establishes that the "payment period" will be two business days beyond "the standard securities settlement cycle in the United States" as defined in SEC Rule 15c6-1.

Presently, standard settlement is five days after trade date and Reg. T requirements must be met in seven business days. There is no change until June 1, 1995, when SEC Rule 15c6-1 becomes effective. Then, the standard settlement period will shorten to three business days (T+3) and payments required by Reg. T must be made in five business days.

De Minimis Amount

Broker/dealers are required to liquidate customer purchases for which they have not received payment within the required time period. Currently, amounts of $500 or less are exempt from this requirement. The amendments to Reg. T increase this de minimis amount to $1,000.

Extension Requests

Under certain circumstances, broker/ dealers can obtain an extension of time for a customer who has not made full cash payment or met an initial margin call within the payment period. Reg. T currently permits a broker/dealer to request these extensions from any serf-regulatory organization. As amended, Reg. T requires that these extensions be granted only by a broker/dealer's designated examining authority.

Foreign Securities, Unissued Securities, When-Issued Securities, and Refunded Securities

Among the changes to Reg. T are technical amendments to the language concerning cash accounts. These changes ensure that the time periods in which extensions must be obtained and when the "90-day freeze" may be lifted are consistent for certain transactions in which settlement exceeds the standard settlement period.

Government Securities

The changes to Reg. T include two amendments that affect transactions in government securities. The amendments:

• Exempt from Reg. T those broker/ dealers registered with the SEC solely as government securities broker/ dealers (Section 15C broker/dealers), and
   
• Create a new account for customers of general securities broker/dealers in which transactions in government securities may be effected exempt from the other provisions of Reg. T.

For a detailed description of these amendments, members may review NASD Notice to Members 94-53, which discusses the proposed changes, and the October 25, 1994, Federal Register, which contains the Fed's release adopting these changes. Questions regarding this Notice may be directed to Derick Black, NASD Compliance Department, at (202) 728-8225.