[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR220.121]

[Page 26-27]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 220--CREDIT BY BROKERS AND DEALERS (REGULATION T)--Table of Contents
 
Sec. 220.121  Applicability of margin requirements to joint account between two creditors.

    (a) The Board has recently been asked whether extensions of credit 
in a joint account between two brokerage firms, a member of a national 
securities exchange (``Firm X'') and a member of the National 
Association of Securities Dealers (``Firm Y'') are subject to the margin 
requirements of this part (Regulation T). It is understood that similar 
joint accounts are not uncommon, and it appears that the margin 
requirements of the regulation are not consistently applied to 
extensions of credit in the accounts.
    (b) When the account in question was opened, Firm Y deposited $5,000 
with Firm X and has made no further deposit in the account, except for 
the monthly settlement described below. Both firms have the privilege of 
buying and selling specified securities in the account, but it appears 
that Firm X initiates most of the transactions therein. Trading volume 
may run from half a million to a million dollars a month. Firm X carries 
the ``official'' ledger of the account and sends Firm Y a monthly 
statement with a complete record of all transactions effected during the 
month. Settlement is then made in accordance with the agreement between 
the two firms, which provides that profits and losses shall be shared 
equally on a fifty-fifty basis. However, all transactions are confirmed 
and reconfirmed between the two on a daily basis.
    (c) Section 220.3(a) provides that

    All financial relations between a creditor and a customer, whether 
recorded in one record or in more than one record, shall be included in 
and be deemed to be part of the customer's general account with the 
creditor, * * *.


and Sec. 220.2(c) defines the term ``customer'' to include

    * * * any person, or any group of persons acting jointly, * * * to 
or for whom a creditor is extending or maintaining any credit * * *


In the course of a normal month's operations, both Firm X and Firm Y are 
at one time or another extending credit to the joint account, since both 
make purchases for the account that are not ``settled'' until the 
month's end. Consequently, the account would be a ``customer'' within 
the above definition.
    (d) Section 220.6(b) provides, with respect to the account of a 
joint adventure in which a creditor participates, that

    * * * the adjusted debit balance of the account shall include, in 
addition to the items specified in Sec. 220.3(d), any amount by which 
the creditor's contribution to the joint adventure exceeds the 
contribution which he would have made if he had contributed merely in 
proportion to his right to share in the profits of the joint adventure.


In addition, the final paragraph of Sec. 220.2(c) states that the 
definition of ``customer''

    * * * includes any joint adventure in which a creditor participates 
and which would be considered a customer of the creditor if the creditor 
were not a participant.

    (e) The above provisions clearly evince the Board's intent that the 
regulation shall cover trading accounts in which a creditor 
participates. If additional confirmation were needed, it is supplied by 
the fact that the Board found it needful specifically to exempt from 
ordinary margin requirements

[[Page 27]]

credit extended to certain joint accounts in which a creditor 
participates. These include the account in which transactions of odd-lot 
dealers may be financed under Sec. 220.4(f) (4), and the specialist's 
account under Sec. 220.4(g). Accordingly, the Board concluded that the 
joint account between Firm X and Firm Y is a ``customer'' within the 
meaning of the regulation, and that extensions of credit in the account 
are subject to margin requirements.

[31 FR 7169, May 17, 1966]