[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR220.110]

[Page 19-20]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 220_CREDIT BY BROKERS AND DEALERS (REGULATION T)--Table of Contents
 
Sec. 220.110  Assistance by Federal credit union to its members.

    (a) An inquiry was presented recently concerning the application of 
this part or part 221 of this subchapter, to a plan proposed by a 
Federal credit union to aid its members in purchasing stock of a 
corporation whose subsidiary apparently was the employer of all the 
credit union's members.
    (b) From the information submitted, the plan appeared to contemplate 
that the Federal credit union would accept orders from its members for 
registered common stock of the parent corporation in multiples of 5 
shares; that whenever orders had been so received for a total of 100 
shares, the credit union, as agent for such members, would execute the 
orders through a brokerage firm with membership on a national securities 
exchange; that the brokerage firm would deliver certificates for the 
stock, registered in the names of the individual purchasers, to the 
credit union against payment by the credit union; that the credit union 
would prorate the total amount so paid, including the brokerage fee,

[[Page 20]]

among the individual purchasers according to the number of shares 
purchased by them; and that a savings in brokerage fee resulting from 
the 100-lot purchases would be passed on by the credit union to the 
individual purchasers of the stock. However, amounts of the stock less 
than 100 shares would be purchased by the credit union through the 
brokerage firm for any members willing to forego such savings.
    (c) It appeared further that the Federal credit union members for 
whom stock was so purchased would reimburse the credit union (1) by cash 
payment, (2) by the proceeds of withdrawn shares of the credit union, 
(3) by the proceeds of an installment loan from the credit union 
collateraled by the stock purchased, or by (4) by a combination of two 
or more of the above methods. To assist the collection of any such loan, 
the employer of the credit union members would provide payroll 
deductions. Apparently, sales by the credit union of any of the stock 
purchased by one of its members would occur only in satisfaction of a 
delinquent loan balance. In no case did it appear that the credit union 
would make a charge for arranging the execution of transactions in the 
stock for its members.
    (d) The Board was of the view that, from the facts as presented, it 
did not appear that the Federal credit union should be regarded as the 
type of institution to which part 221 of this subchapter, in its present 
form, applied.
    (e) With respect to this part, the question was whether the 
activities of the Federal credit union under the proposal, or otherwise, 
might be such as to bring it within the meaning of the terms ``broker'' 
or ``dealer'' as used in the part and the Securities Exchange Act of 
1934. The Board observed that this, of course, was a question of fact 
that necessarily depended upon the circumstances of the particular case, 
including the manner in which the arrangement in question might be 
carried out in practice.
    (f) On the basis of the information submitted, however, it did not 
appear to the Board that the Federal credit union should be regarded as 
being subject to this part as a ``broker or dealer who transacts a 
business in securities through the medium of'' a member firm solely 
because of its activities as contemplated by the proposal in question. 
The Board stated that the part rather clearly would not apply if there 
appeared to be nothing other than loans by the credit union to its 
members to finance purchases made directly by them of stock of the 
parent corporation of the employer of the member-borrowers. The 
additional fact that the credit union, as agent, would purchase such 
stock for its members (even though all such purchases might not be 
financed by credit union loans) was not viewed by the Board as 
sufficient to make the regulation applicable where, as from the facts 
presented, it did not appear that the credit union in any case was to 
make any charge or receive any compensation for assisting in such 
purchases or that the credit union otherwise was engaged in securities 
activities. However, the Board stated that matters of this kind must be 
examined closely for any variations that might suggest the 
inapplicability of the foregoing.

[18 FR 4592, Aug. 5, 1953]