Security Paper Ineligible

Notes, drafts or bills covering merely investments or issued or drawn for the purpose of carrying on trading in stocks, bonds or other investment securities, except bonds or notes of the United States Government are ineligible for rediscount.

Regulations Of The Federal Reserve Board

Relating to Ineligible Drafts and Trade Acceptances

Notes For Permanent, Fixed Or Speculative Investments

The paper must not be a note, draft or bill of exchange, the proceeds of which have been used or are to be used for permanent or fixed investments of any kind, such as land, buildings or machinery. The paper must not be a note, draft or bill of exchange, the proceeds of which have been used or are to be used for investments of a purely speculative character.

Opinions Of Counsel And Rulings

Relating to Ineligible Drafts and Trade Acceptances

Acceptances Based On Future Purchases

A bill, in order to be a trade acceptance, must arise out of a purchase of goods, and unless that purchase is either consummated or actually contracted for at the time the bill is drawn, it is doubtful whether it can properly be said that the obligation arises out of a purchase of goods.

Drafts In Payment Of Insurance Premiums

A draft drawn by a casualty company against the policy holder for premiums could hardly be said to be a draft by the seller on the purchaser of goods sold and would not in the opinion of the Board come within the Board's present definition of a trade acceptance.

Drafts Drawn To Finance Capital Requirements Ineligible

The Board conceives the trade acceptance as an instrument which carries upon its face the evidence of the commercial character of the transaction which gave it birth. The finance paper of the corporation issued against drafts drawn by it on dealers and placed in trust to secure such paper issued by it in the shape of notes or certificates, gives no indication whatever as to the nature of the security, which may or may not be eligible paper. The corporation by issuing notes of this character is really raising money for capital requirements for similar transactions in the future, and the whole plan is in essence a finance operation rather than a commercial transaction.

Evidence Of Eligibility Regulations Of The Federal Reserve Board

Character Of Evidence

A Federal Reserve bank may take such steps as it deems necessary to satisfy itself as to the eligibility of the draft or bill offered for rediscount, unless it presents prima facie evi-dence thereof, or bears a stamp or certificate affixed by the acceptor or drawer showing that it is a trade acceptance.

Opinions And Rulings

Relating to Evidence of Eligibility

Effect of stamp "trade acceptance." - It has been held several times that a bill stamped a "trade acceptance" by a land company, and signed by such party as "acceptor" does not in itself make it a trade acceptance.

Maturity General Statutory Provisions