Securities Exchange Act of 1934–CML Remedies Based Upon Illegal Extension of Credit in Violation of Regulation T

Following the stock market crash of 1929, there was considerable agitation for the regulation, and even the elimination, of the purchasing of securities on credit. Indeed, the extension of credit for the purchasing of securities became an issue in the 1932 presidential campaign and finally, in 1934, came under direct federal control. Although the federal regulations were intended to eliminate the hazards associated with the extension of credit for the purchasing of securities, all the available evidence indicates that the substantial amount of credit in the stock market was a significant factor in pushing up prices during the bull market, and in magnifying the drop in prices that took place in May and June of 1962. The speculators seem to have had no difficulty in satisfying their demands for credit from a variety of lenders who were adept at circumventing both the federal and stock exchange regulations. To understand the problems involved in purchasing securities on credit, and in particular the civil remedies based upon the illegal extension of credit, it is essential to understand the various pertinent credit regulations. Indeed, the failure on the part of some courts to appreciate the complexities of these regulations has led to confusing statements in several opinions.