Reg U Flashcards
Who is covered by Reg U?
Persons or institutions (including banks) other than brokers or dealers, that extend credit for the purpose of buying or carrying margin stock if the credit is secured directly or indirectly by margin stock
Who or what is exempted from Reg U?
* the person or institution is a member of the national securities exchange meeting specific requirements (exempted borrower) OR
* the transaction is exempted
What is purpose credit?
credit for the immediate, incidental, or ultimate purpose of purchasing or carrying margin stock
Lenders may not extend credit for the purpose of ultimately buying or carrying margin stock in an amount that exceeds:
the maximum loan value of the collateral securing the credit
Banks must obtain a purpose statement (FR U-1) for credit in an amount:
exceeding $100,000 that is secured directly or indirectly by margin stock
What is the maximum loan value of margin stock?
* currently 50% of the current market value
* subject to change by the Federal Reserve
For revolving credit and multiple draw loans, if the loan is a purpose credit, the maximum loan value of the collateral must at least:
equal the amount of the funds disbursed or, at the end of any day during which credit is extended, the lender must call for additional collateral to bring the credit into compliance with the maximum loan value requirements
If purpose credit has been extended to the borrower, the lender may not later extend unsecured purpose credit to the same borrower unless:
the combined credit does not exceed the maximum loan value of the collateral securing the first purpose credit
If the borrower has purpose credit secured by margin stock and nonpurpose credit, the lender must:
treat the loans separately and the stock may not be
cross-collateralized to the nonpurpose loan
A renewal or extension of credit will not be considered a new credit if the credit is increased only:
by the addition of interest, service charges, or taxes with respect to the credit
What are the penalties for Reg U violations?
Civil - up to $100 per day
Criminal - up to $100,000 and imprisonment for up to 5 years
All purpose credit extended to a customer must be treated as:
a single credit for purposes of Regulation U
T or F
Unsecured purpose credit extended after secured purpose credit will be combined for purposes of determining whether the loan complies with the restrictions on the maximum loan value of the collateral.
TRUE
T or F
Securities issued by an investment company licensed under the SBA Act is specifically exempted from coverage.
TRUE
How is the maximum loan value of margin stock defined?
as a percentage of the current market value of the stock
