BROKER-DEALER FUNDING.

SEC. 104. BROKER-DEALER FUNDING. (a) Margin Requirements.— (1) Extensions of credit by broker-dealers.—Section 7(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78g(c)) is amended to read as follows: “(c) Unlawful Credit Extension to Customers.— “(1) Prohibition.—It shall be unlawful for any member of a national securities exchange or any broker or dealer, directly or indirectly, to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer— “(A) on any security (other than an exempted security), in contravention of the rules and regulations which the Board of Governors of the Federal Reserve System (hereafter in this section referred to as the ‘Board’) shall prescribe under subsections (a) and (b); and “(B) without collateral or on any collateral other than securities, except in accordance with such rules and regulations as the Board may prescribe— “(i) to permit under specified conditions and for a limited period any such member, broker, or dealer to maintain a credit initially extended in conformity with the rules and regulations of the Board; and “(ii) to permit the extension or maintenance of credit in cases where the extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of subparagraph (A). “(2) Exception.—This subsection and the rules and regulations issued under this subsection shall not apply to any credit extended, maintained, or arranged by a member of a national securities exchange or a broker or dealer to or for a member of a national securities exchange or a registered broker or dealer— “(A) a substantial portion of whose business consists of transactions with persons other than brokers or dealers; or 110 STAT. 3423 “(B) to finance its activities as a market maker or an underwriter; except that the Board may impose such rules and regulations, in whole or in part, on any credit otherwise exempted by this paragraph if the Board determines that such action is necessary or appropriate in the public interest or for the protection of investors.”. (2) Extensions of credit by other lenders.—Section 7(d) of the Securities Exchange Act of 1934 (78 U.S.C. 78g(d)) is amended to read as follows: “(d) Unlawful Credit Extension in Violation of Rules and Regulations; Exception to Application of Rules, Etc.— “(1) Prohibition.—It shall be unlawful for any person not subject to subsection (c) to extend or maintain credit or to arrange for the extension or maintenance of credit for the purpose of purchasing or carrying any security, in contravention of such rules and regulations as the Board shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of the other provisions of this section. Such rules and regulations may impose upon all loans made for the purpose of purchasing or carrying securities limitations similar to those imposed upon members, brokers, or dealers by subsection (c) and the rules and regulations thereunder. “(2) Exceptions.—This subsection and the rules and regulations issued under this subsection shall not apply to any credit extended, maintained, or arranged— “(A) by a person not in the ordinary course of business; “(B) on an exempted security; “(C) to or for a member of a national securities exchange or a registered broker or dealer— “(i) a substantial portion of whose business consists of transactions with persons other than brokers or dealers; or “(ii) to finance its activities as a market maker or an underwriter; “(D) by a bank on a security other than an equity security; or “(E) as the Board shall, by such rules, regulations, or orders as it may deem necessary or appropriate in the public interest or for the protection of investors, exempt, either unconditionally or upon specified terms and conditions or for stated periods, from the operation of this sub-section and the rules and regulations thereunder. “(3) Board authority.—The Board may impose such rules and regulations, in whole or in part, on any credit otherwise exempted by subparagraph (C) if it determines that such action is necessary or appropriate in the public interest or for the protection of investors.”. (b) Borrowing by Members, Brokers, and Dealers.—Section 8 of the Securities Exchange Act of 1934 (15 U.S.C. 78h) is amended— (1) by striking subsection (a); and (2) by redesignating subsections (b) and (c) as subsections (a) and (b), respectively.