(a) Special-purpose loans. A lender may extend and maintain purpose
credit to brokers and dealers without regard to the limitations set
forth in sections 221.3 and 221.7, if the credit is for any of the
specific purposes and meets the conditions set forth in paragraph
(c) of this section.
(b) Written notice. Prior to extending credit for more than a day
under this section, the lender shall obtain and accept in good faith
a written notice or certification from the borrower as to the purposes
of the loan. The written notice or certification shall be evidence
of continued eligibility for the special-credit provisions until the
borrower notifies the lender that it is no longer eligible or the
lender has information that would cause a reasonable person to question
whether the credit is being used for the purpose specified.
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(c) Types of special-purpose credit. The types of credit that may be extended and maintained on a good
faith basis are as follows:
(1) Hypothecation
loans. Credit secured by hypothecated customer securities that,
according to written notice received from the broker or dealer, may
be hypothecated by the broker or dealer under Securities and Exchange
Commission (SEC) rules.
(2) Temporary advances in payment-against-delivery
transactions. Credit to finance the purchase or sale of securities
for prompt delivery, if the credit is to be repaid upon completion
of the transaction.
(3) Loans for securities in transit or
transfer. Credit to finance securities in transit or surrendered
for transfer, if the credit is to be repaid upon completion of the
transaction.
(4) Intraday loans. Credit to enable a broker
or dealer to pay for securities, if the credit is to be repaid on
the same day it is extended.
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(5) Arbitrage
loans. Credit to finance proprietary or customer bona fide arbitrage
transactions. For the purpose of this section “bona fide arbitrage”
means—
(i) 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 nearly the same time as practicable,
for the purpose of taking advantage of a difference in prices in the
two markets; or
(ii) purchase of a security that 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 price of the
two securities.
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(6) Market maker
and specialist loans. Credit to a member of a national securities
exchange or registered broker or dealer to finance its activities
as a market maker or specialist.
(7) Underwriter
loans. Credit to a member of a national securities exchange or
registered broker or dealer to finance its activities as an underwriter.
(8) Emergency loans. Credit that is essential
to meet emergency needs of the broker-dealer business arising from
exceptional circumstances.
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(9) Capital-contribution
loans.
(i) Credit that the Board has exempted
by order upon a finding that the exemption is necessary or appropriate
in the public interest or for the protection of investors,
provided the Securities Investor Protection Corporation certifies
to the Board that the exemption is appropriate; or
(ii) credit to a customer for the purpose
of making a subordinated loan or capital contribution to a broker
or dealer in conformity with the SEC’s net-capital rules and the rules
of the broker’s or dealer’s examining authority, provided—
(A) the customer
reduces the credit by the amount of any reduction in the loan or contribution
to the broker or dealer; and
(B) the credit is not used to purchase securities issued by the broker
or dealer in a public distribution.
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(10) Credit to clearing brokers or dealers. Credit to a member of
a national securities exchange or registered broker or dealer whose
nonproprietary business is limited to financing and carrying the accounts
of registered market makers.
