§ 78h. — Restrictions on borrowing and lending by members, brokers, and dealers.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC78h]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2B--SECURITIES EXCHANGES
Sec. 78h. Restrictions on borrowing and lending by members,
brokers, and dealers
It shall be unlawful for any registered broker or dealer, member of
a national securities exchange, or broker or dealer who transacts a
business in securities through the medium of any member of a national
securities exchange, directly or indirectly--
(a) In contravention of such rules and regulations as the Commission
shall prescribe for the protection of investors to hypothecate or
arrange for the hypothecation of any securities carried for the account
of any customer under circumstances (1) that will permit the commingling
of his securities without his written consent with the securities of any
other customer, (2) that will permit such securities to be commingled
with the securities of any person other than a bona fide customer, or
(3) that will permit such securities to be hypothecated, or subjected to
any lien or claim of the pledgee, for a sum in excess of the aggregate
indebtedness of such customers in respect of such securities.
(b) To lend or arrange for the lending of any securities carried for
the account of any customer without the written consent of such customer
or in contravention of such rules and regulations as the Commission
shall prescribe for the protection of investors.
(June 6, 1934, ch. 404, title I, Sec. 8, 48 Stat. 888; Aug. 23, 1935,
ch. 614, Sec. 203(a), 49 Stat. 704; Pub. L. 94-29, Sec. 5, June 4, 1975,
89 Stat. 109; Pub. L. 98-440, title I, Sec. 103, Oct. 3, 1984, 98 Stat.
1690; Pub. L. 103-325, title II, Sec. 204, Sept. 23, 1994, 108 Stat.
2199; Pub. L. 104-290, title I, Sec. 104(b), Oct. 11, 1996, 110 Stat.
3423.)
Amendments
1996--Pub. L. 104-290 redesignated subsecs. (b) and (c) as (a) and
(b), respectively, and struck out former subsec. (a) which related to
borrowing in ordinary course of business as broker or dealer on any
security, except exempted security, registered on national securities
exchange.
1994--Subsec. (a). Pub. L. 103-325 inserted ``or a small business
related security'' after ``mortgage related security'' in last sentence.
1984--Subsec. (a). Pub. L. 98-440 inserted provision that no person
shall be deemed to have borrowed within the ordinary course of business,
within the meaning of this subsection, by reason of a bona fide
agreement for delayed delivery of a mortgage related security under
certain conditions.
1975--Pub. L. 94-29, Sec. 5(1), substituted ``any registered broker
or dealer, member of a national securities exchange, or broker or dealer
who transacts a business in securities through the medium of any member
of a national securities exchange'' for ``any member of a national
securities exchange, or any broker or dealer who transacts a business in
securities through the medium of any such member'' in provisions
preceding subsec. (a).
Subsecs. (b) to (d). Pub. L. 94-29, Sec. 5(2), redesignated subsecs.
(c) and (d) as (b) and (c), respectively, and in subsec. (c) as so
redesignated inserted ``or in contravention of such rules and
regulations as the Commissioner shall prescribe for the protection of
investors'' after ``written consent of such customer''. Former subsec.
(b), which covered the maximum allowable aggregate indebtedness of
brokers, was struck out.
Change of Name
Act Aug. 23, 1935, substituted ``Board of Governors of the Federal
Reserve System'' for ``Federal Reserve Board''.
Effective Date of 1975 Amendment
Amendment by Pub. L. 94-29 effective June 4, 1975, see section 31(a)
of Pub. L. 94-29, set out as a note under section 78b of this title.
Transfer of Functions
For transfer of functions of Securities and Exchange Commission,
with certain exceptions, to Chairman of such Commission, see Reorg. Plan
No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat.
1265, set out under section 78d of this title.
Section Referred to in Other Sections
This section is referred to in sections 78f, 78o, 78o-3, 78hh of
this title; title 7 section 6d.
