Office of the General Counsel
B-271810.6
May 23, 1996
The Honorable Alfonse M. D'Amato Chairman The Honorable Paul S.
Sarbanes Ranking Minority Member Committee on Banking, Housing, and
Urban Affairs United States Senate
The Honorable Thomas J. Bliley, Jr. Chairman The Honorable John
D. Dingell Ranking Minority Member Committee on Commerce House of
Representatives
Subject: Securities Credit Transactions; Review of Regulation T,
"Credit by Brokers and Dealers"
Pursuant to section 801(a)(2)(A) of title 5, United States Code,
this is our report on a major rule promulgated by the Board of
Governors of the Federal Reserve System, entitled "Securities
Credit Transactions; Review of Regulation T, 'Credit by Brokers and
Dealers'" (RIN 7100-AB28). Among other things, the rule amends
Regulation T to (1) eliminate restrictions on the ability of
broker-dealers to arrange for credit; (2) increase the type and
number of domestic and foreign securities that may be bought on
margin and increase the loan value of some securities that already
are marginable; (3) delete Board rules regarding options
transactions in favor of the rules of the options exchanges; and
(4) reduce restrictions on transactions involving foreign persons,
securities, and currency. We received the rule on May 9, 1996. It
was published in the Federal Register as a final rule on May 6,
1996. 61 Fed. Reg. 20386.
Enclosed is our assessment of the Board's compliance with the
procedural steps required by section 801(a)(1)(B)(i) through (iv)
of title 5 with respect to the rule. Our review indicates that the
Board complied with the applicable requirements.
GAO/OGC-96-15 If you have any questions about this report,
please contact Henry R. Wray, Senior Associate General Counsel, at
(202) 512-8581. The official responsible for GAO evaluation work
relating to the Federal Reserve System is James L. Bothwell,
Director, Financial Institutions and Markets Issues. Mr. Bothwell
can be reached at (202) 512-8678.
Robert P. Murphy General Counsel
Enclosure
cc: Mr. Donald J. Winn Assistant to the Board Board of Governors
of the Federal Reserve System
Page 2 GAO/OGC-96-15
ENCLOSURE
ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
ENTITLED "SECURITIES CREDIT TRANSACTIONS; REVIEW OF REGULATION T,
'CREDIT BY BROKERS AND DEALERS'" (RIN 7100-AB28)
(i)
Cost-benefit analysis
A cost-benefit analysis was not required or prepared for the
rule.
(ii)
Agency actions relevant to the Regulatory Flexibility
Act, 5 U.S.C. §§ 603-605, 607 and 609
Pursuant to section 605(b) of the Act, the Board certified in
the preamble to both the proposed rulemaking (60 Fed. Reg. 33763,
33771 (June 29, 1995)) and the final rulemaking (61 Fed. Reg.
20386, 20389 (May 6, 1996)) that the rule would not have a
substantial effect on a significant number of small entities.1
Therefore, it was not required to prepare an initial or final
regulatory flexibility analysis under sections 603 or 604 of the
Act. For the same reason, section 607 is inapplicable. While
section 609 likewise is inapplicable, the Board's submission to our
Office states that, in addition to publishing the proposed rule in
the Federal Register, it took several steps to give small entities
the opportunity to participate in the rulemaking. Specifically, the
proposal was distributed to interested parties by the twelve
Federal Reserve Banks and by the National Association of Securities
Dealers.
According to a Board official, the Board's section 605(b)
certifications were not provided separately to the Small Business
Administration (SBA) Chief Counsel for Advocacy. Rather, in
accordance with the Board's practice, publication of the
certifications in the Federal Register was treated as providing
notice to SBA. An SBA official has confirmed that some agencies
follow this practice without objection from SBA.
1The preamble to the final rule actually states that the rule
will not have a substantial "adverse effect" on a significant
number of small broker-dealers. However, we understand from the
preamble to the proposed rule and the Board's letter to our Office
that the Board intended this statement to constitute a
certification under section 605(b) that the rule would not have any
significant economic impact on a substantial number of small
entities. A Board official confirmed our understanding.
GAO/OGC-96-15 (iii) Agency actions relevant to sections 202-205
of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. §§
1532-1535
The rule, promulgated by an independent regulatory agency, is
not subject to title II of the Act.
(iv) Other relevant information or requirements under Acts and
Executive orders
Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.
The rule was promulgated through the notice and comment
rulemaking procedures of the Act, 5 U.S.C. § 553. The proposed
rulemaking was published on June 29, 1995, 60 Fed. Reg. 33763, and
afforded interested persons the opportunity to comment on the
proposed rule. On August 23, 1995, the comment period was extended
at the request of commenters. 60 Fed. Reg. 43726. The preamble to
the final rule evaluated and responded to comments.
Paperwork Reduction Act, 44 U.S.C. §§ 3501-3512
The rule does not impose information collection requirements
subject to the Act.
Statutory authorization for the rule
The rule was authorized by section 7 of the Securities Exchange
Act of 1934, as amended, 15 U.S.C. § 78g, which directs the Board
to prescribe regulations with respect to the amount of credit that
may be extended by a broker-dealer on any non-exempted
security.
The preamble to the final rule notes that the rule is
encompassed within the Board's regulatory review under section 303
of the Riegle Community Redevelopment and Regulatory Improvement
Act of 1994, 12 U.S.C. § 4803. The Board did not identify any other
statutes or Executive orders imposing requirements relevant to the
rule.
Page 2 GAO/OGC-96-15
