Editorial Note on Part 220
Editorial Note: A copy of each form referred to in this part is filed as a part of the original document. Copies are available upon request to the Board of Governors of the Federal Reserve System or any Federal Reserve Bank.

§ 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 § 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 § 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 § 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 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 § 220.4(f) (4), and the specialist's account under § 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]