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Title 15 — Commerce and TradeRelease 119-73

§78h Restrictions on borrowing and lending by members, brokers, and dealers

Title 15 › Chapter CHAPTER 2B— - SECURITIES EXCHANGES › § 78h

Last updated Apr 6, 2026|Official source

Summary

Registered brokers, dealers, and members of national securities exchanges must not, whether directly or through others, pledge or arrange to pledge a customer's securities in ways that let those securities be mixed with other customers’ holdings without the customer's written permission, be mixed with securities of someone who is not a real customer, or be used as collateral for more than the total amount those customers owe on those securities. They must follow any investor-protection rules the SEC creates. They also must not lend or arrange to lend a customer's securities without the customer's written consent or in ways that break the SEC’s investor-protection rules.

Full Legal Text

Title 15, §78h

Commerce and Trade — Source: USLM XML via OLRC

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.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

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, § 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, § 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.

Statutory Notes and Related Subsidiaries

Change of Name

Act Aug. 23, 1935, substituted “Board of Governors of the Federal Reserve System” for “Federal Reserve Board”.

Effective Date

of 1975 AmendmentAmendment 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.

Executive Documents

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, §§ 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title.

Reference

Citations & Metadata

Citation

15 U.S.C. § 78h

Title 15 — Commerce and Trade

Last Updated

Apr 6, 2026

Release point: 119-73