Regulation A

Summary of Regulation A

A pronouncement of the Federal Reserve Board (12 CFR 201) governing the creation of banker’s acceptances. In essence, the regulation requires that an “eligible”banker’s acceptance (i.e., one acceptable for discount at the Federal Reserve discount window) have a maturity of not more than 180 days, exclusive of days of grace, and

1. arise as the result of the importation or exportation of goods between the United States and another country or two foreign countries; or

2. cover a domestic shipment of goods within the United States, providing the transaction is secured by a trust receipt for the goods; or

3. cover the financing of goods in a warehouse where the goods are secured by a negotiable warehouse receipt. It is a further condition of warehouse financing that the goods be Readily Marketable Staples (read this and related legal terms for further details).

Banker’s acceptances created outside the conditions set forth above are “ineligible”for discount at the Federal Reserve and for certain other uses, such as investments by pension funds. Effective with the repeal of Regulations B and C on April 1, 1974, certain ineligible acceptances with tenor up to 270 days from acceptance are acceptable for purchase and sale by the Federal Open Market Committee.

(Main Author: William J. Miller)