The terms used in this part
have the meanings given them in section 3(a) of the act or as defined
in this section as follows:
Affiliate means—
(1) For banks:
(i) any
bank holding company of which a bank is a subsidiary within the meaning
of the Bank Holding Company Act of 1956, as amended (12 USC 1841(d));
(ii) any other subsidiary
of such bank holding company; and
(iii) any other corporation, business
trust, association, or other similar organization that is an affiliate
as defined in section 2(b) of the Banking Act of 1933 (12 USC 221a(c)).
(2) For nonbank
lenders, affiliate means any person who, directly or indirectly,
through one or more intermediaries, controls, or is controlled by,
or is under common control with the lender.
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Bank.
(1) Bank has the meaning given to
it in section 3(a)(6) of the act (15 USC 78c(a)(6)) and includes—
(i) any
subsidiary of a bank;
(ii) any corporation organized under section 25A of the Federal Reserve
Act (12 USC 611); and
(iii) any agency or branch of a foreign bank located within the United
States.
(2) Bank does not include—
(i) any savings and loan
association,
(ii)
any credit union,
(iii) any lending institution that is an instrumentality or agency
of the United States, or
(iv) any member of a national securities
exchange.
Carrying credit is credit that enables a customer to maintain, reduce, or
retire indebtedness originally incurred to purchase a security that
is currently a margin stock.
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Current market
value of—
(1) a security means—
(i) if
quotations are available, the closing sale price of the security on
the preceding business day, as appearing on any regularly published
reporting or quotation service; or
(ii) if there is no closing sale price,
the lender may use any reasonable estimate of the market value of
the security as of the close of business on the preceding business
day; or
(iii) if
the credit is used to finance the purchase of the security, the total
cost of purchase, which may include any commissions charged.
(2) any other collateral
means a value determined by any reasonable method.
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Customer excludes an exempted borrower and includes any person
or persons acting jointly, to or for whom a lender extends or maintains
credit.
Examining authority means—
(1) the national securities exchange or
national securities association of which a broker or dealer is a member;
or
(2) if a member of
more than one selfregulatory organization, the organization designated
by the Securities and Exchange Commission as the examining authority
for the broker or dealer.
Exempted
borrower means a member of a national securities exchange or a
registered broker or dealer, a substantial portion of whose business
consists of transactions with persons other than brokers or dealers,
and includes a borrower who—
(1) maintains at least 1000 active accounts
on an annual basis for persons other than brokers, dealers, and persons
associated with a broker or dealer;
(2) earns at least $10 million in gross
revenues on an annual basis from transactions with persons other than
brokers, dealers, and persons associated with a broker or dealer;
or
(3) earns at least
10 percent of its gross revenues on an annual basis from transactions
with persons other than brokers, dealers, and persons associated with
a broker-dealer.
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Good faith with respect to—
(1) the loan value of collateral, means
that amount (not exceeding 100 percent of the current market value
of the collateral) which a lender, exercising sound credit judgment,
would lend, without regard to the customer’s other assets held as
collateral in connection with unrelated transactions;
(2) making a determination or accepting
a statement concerning a borrower means that the lender or its duly
authorized representative is alert to the circumstances surrounding
the credit, and if in possession of information that would cause a
prudent person not to make the determination or accept the notice
or certification without inquiry, investigates and is satisfied that
it is correct.
In the ordinary course
of business means occurring or reasonably expected to occur in
carrying out or furthering any business purpose, or in the case of
an individual, in the course of any activity for profit or the management
or preservation of property.
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Indirectly
secured—
(1) includes any arrangement
with the customer under which—
(i) the customer’s right
or ability to sell, pledge, or otherwise dispose of margin stock owned
by the customer is in any way restricted while the credit remains
outstanding; or
(ii)
the exercise of such right is or may be cause for accelerating the
maturity of the credit.
(2) does not include such an arrangement
if—
(i) after applying the proceeds of the
credit, not more than 25 percent of the value (as determined by any
reasonable method) of the assets subject to the arrangement is represented
by margin stock;
(ii) it is a lending arrangement that permits accelerating the maturity
of the credit as a result of a default or renegotiation of another
credit to the customer by another lender that is not an affiliate
of the lender;
(iii)
the lender holds the margin stock only in the capacity of custodian,
depositary, or trustee, or under similar circumstances, and, in good
faith, has not relied upon the margin stock as collateral; or
(iv) the lender, in good
faith, has not relied upon the margin stock as collateral in extending
or maintaining the particular credit.
Lender means—
(1) any bank; or
(2) any person subject to the registration
requirements of this part.
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Margin stock means—
(1) any equity security
registered or having unlisted trading privileges on a national securities
exchange;
(2) any OTC
security designated as qualified for trading in the National Market
System under a designation plan approved by the Securities and Exchange
Commission (NMS security);
(3) any debt security convertible into a margin stock or carrying
a warrant or right to subscribe to or purchase a margin stock;
(4) any warrant or right
to subscribe to or purchase a margin stock; or
(5) any security issued by an investment
company registered under section 8 of the Investment Company Act of
1940 (15 USC 80a-8), other than—
(i) a company licensed under
the Small Business Investment Act of 1958, as amended (15 USC 661);
or
(ii) a company
which has at least 95 percent of its assets continuously invested
in exempted securities (as defined in 15 USC 78c(a)(12)); or
(iii) a company which issues
face-amount certificates as defined in 15 USC 80a-2(a)(15), but only
with respect of such securities; or
(iv) a company which is considered a
money market fund under SEC Rule 2a-7 (17 CFR 270.2a-7).
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Maximum loan value is the percentage of current
market value assigned by the Board under section 221.7 (the supplement)
to specified types of collateral. The maximum loan value of margin
stock is stated as a percentage of its current market value. Puts,
calls, and combinations thereof that do not qualify as margin stock
have no loan value. All other collateral has good faith loan value.
Nonbank lender means any person subject to
the registration requirements of this part.
Purpose credit is any credit for the purpose, whether immediate,
incidental, or ultimate, of buying or carrying margin stock.
