[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: 12CFR220.127]

[Page 31]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 220_CREDIT BY BROKERS AND DEALERS (REGULATION T)--Table of Contents
 
Sec. 220.127  Independent broker/dealers arranging credit in connection 
with the sale of insurance premium funding programs.

    (a) The Board's September 5, 1972, clarifying amendment to Sec. 
220.4(k) set forth that creditors who arrange credit for the acquisition 
of mutual fund shares and insurance are also permitted to sell mutual 
fund shares without insurance under the provisions of the special cash 
account. It should be understood, of course, that such account provides 
a relatively short credit period of up to 7 business days even with so-
called cash transactions. This amendment was in accordance with the 
Board's understanding in 1969, when the insurance premium funding 
provisions were adopted in Sec. 220.4(k), that firms engaged in a 
general securities business would not also be engaged in the sale and 
arranging of credit in connection with such insurance premium funding 
programs.
    (b) The 1972 amendment eliminated from Sec. 220.4(k) the 
requirement that, to be eligible for the provisions of the section, a 
creditor had to be the issuer, or a subsidiary or affiliate of the 
issuer, of programs which combine the acquisition of both mutual fund 
shares and insurance. Thus the amendment permits an independent broker/
dealer to sell such a program and to arrange for financing in that 
connection. In reaching such decision, the Board again relied upon the 
earlier understanding that independent broker/dealers who would sell 
such programs would not be engaged in transacting a general securities 
business.
    (c) In response to a specific view recently expressed, the Board 
agrees that under Regulation T:

    * * * a broker/dealer dealing in special insurance premium funding 
products can only extend credit in connection with such products or in 
connection with the sale of shares of registered investment companies 
under the cash accounts * * * (and) cannot engage in the general 
securities business or sell any securities other than shares * * * (in) 
registered investment companies through a cash account or any other 
manner involving the extension of credit.

    (d) There is a way, of course, as has been indicated, that an 
independent broker/dealer might be able to sell other than shares of 
registered investment companies without creating any conflict with the 
regulation. Such sales could be executed on a ``funds on hand'' basis 
and in the case of payment by check, would have to include the 
collection of such check. It is understood from industry sources, 
however, that few if any independent broker/dealers engage solely in a 
``fund on hand'' type of operation.

[38 FR 11066, May 4, 1973]