§ 221.110 Questions arising under this part. ( a ) This part governs “any purpose credit” extended by a lender “secured directly or indirectly by margin stock” and defines “purpose credit” as “any credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock, “ with certain exceptions, and provides that the maximum loan value of such margin stock shall be a fixed percentage “of its current market value.”
( b ) The Board of Governors has had occasion to consider the application of the language in paragraph (a) of this section to the two following questions: ( 1 ) *Loan secured by stock.* First, is a loan to purchase or carry margin stock subject to this part where made in unsecured form, if margin stock is subsequently deposited as security with the lender, and surrounding circumstances indicate that the parties originally contemplated that the loan should be so secured? The Board answered that in a case of this kind, the loan would be subject to this part, for the following reasons: ( i ) The Board has long held, in the closely related purpose area, that the original purpose of a loan should not be determined upon a narrow analysis of the technical circumstances under which a loan is made. Instead, the fundamental purpose of the loan is considered to be controlling. Indeed, “the fact that a loan made on the borrower's signature only, for example, becomes secured by registered stock shortly after the disbursement of the loan” affords reasonable grounds for questioning whether the bank was entitled to rely upon the borrower's statement as to the purpose of the loan. 1953 Fed. Res. Bull. 951 (*See,* § 221.106).
( ii ) Where security is involved, standards of interpretation should be equally searching. If, for example, the original agreement between borrower and lender contemplated that the loan should be secured by margin stock, and such stock is in fact delivered to the bank when available, the transaction must be regarded as fundamentally a secured loan. This view is strengthened by the fact that this part applies to a loan “secured directly or indirectly by margin stock.”
( 2 ) *Loan to acquire controlling shares.* ( i ) The second question is whether this part governs a margin stock-secured loan made for the business purpose of purchasing a controlling interest in a corporation, or whether such a loan would be exempt on the ground that this part is directed solely toward purchases of stock for speculative or investment purposes. The Board answered that a margin stock-secured loan for the purpose of purchasing or carrying margin stock is subject to this part, regardless of the reason for which the purchase is made.
( ii ) The answer is required, in the Board's view, since the language of this part is explicitly inclusive, covering “any purpose credit, secured directly or indirectly by margin stock.” Moreover, the withdrawal in 1945 of the original section 2(e) of this part, which exempted “any loan for the purpose of purchasing a stock from or through a person who is not a member of a national securities exchange . . .” plainly implies that transactions of the sort described are now subject to the general prohibition of § 221.3(a).