Reg U: Credit by Banks for the Purpose of Purchasing or Carrying Margin Stock Flashcards
What does Reg U cover?
Persons or institutions 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 the margin stock.
Who is an exempted borrower under Reg U?
A member of the national securities exchange or a registered broker or dealer who
- Maintains at least 1,000 active accounts annually for persons other than brokers, dealers, and persons associated with brokers and dealers
- Earns at least $10 million in gross revenues on an annual basis from transactions with persons other than brokers, dealers and persons associated with brokers and dealers
- Earns at least 10% of its gross revenues on an annual basis from transaction with persons other than brokers, dealers and persons associated with brokers and dealers
What if an exempted borrower has been in existence for less than 1 year? Is it still possible to meet the exempted-borrower test?
Yes, it may be based on a 6-mo time period.
What if a member of a national securities exchange or a registered broker or dealer ceases to qualify as an exempted borrower?
It must notify the lender of this fact and all new extensions of credit, renewals of existing loans and additional draws on existing lines of credit to such a borrower must meet the requirements of Reg U.
What is purpose credit as defined by Reg U?
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 _____________ of the collateral securing the credit.
Maximum loan value
Lenders who are not banks must register with the Federal Reserve on Form FR G-1 within __ days after the end of the calendar quarter during which the amount of credit extended equals or exceeds $______ or the amount of the credit outstanding at any time during the quarter equaled $____ or more.
30
$200,000
$500,000
A registered non-bank lender may deregister by filing Form FR G-2 if it has not had more than $______ of qualified credit outstanding during the preceding ___ calendar months.
$200,000
6
Every registered non-bank lender must file Form FR ____ by _____ of each year
G-4
July 30
Banks must obtain a purpose statement for credit in an amount exceeding $______ that is secured directly or indirectly by margin stock.
$100,000
Reg U: What purpose statement form must be executed by the customer and the bank officer?
FR U-1
Non-bank lenders must require customers to execute Form ____, which must also be signed by a representative of the lender, when extending credit secured directly or indirectly by margin stock, regardless of the amount.
G-3
What is the maximum loan value of margin stock?
50% of the current market value, but this is 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 be what?
Must be at least equal to 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.
What is the “single credit rule” under Reg U?
If purpose credit has been extended to a 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.