Full text of Federal Reserve Bank of New York Circulars : 7378. Changes in Listing Criteria for OTC Margin Stocks

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FED ER A L RESER VE BANK
OF NEW YORK
r
L

C ir c u la r N o. 7378*1
A p ril 19, 1974
J

CHANGES IN LISTING CRITERIA FOR OTC MARGIN STOCKS
Proposed Amendments to Regulations G, T, and U
T o A ll P erson s Extending Securities Credit
in the Second Federal R eserve D istrict:

Following is the text of a statement issued April 16 by the Board of Governors of the
Federal Reserve System:
The Board of Governors of the Federal Reserve System proposed today to amend the criteria that
over-the-counter (O T C ) stocks must meet and continue to meet to be included on its List of O T C
Margin Stocks.
The criteria employed in selecting O T C stocks for inclusion on the List of O T C Margin Stocks
were announced on July 8, 1969. M ore than 600 stocks are now on the list and subject to the Board’s
margin requirements.
The proposal, which would make the criteria somewhat less restrictive, reflects the many changes that
have occurred in the O T C market since 1969, particularly the impact of the National Association of Securi­
ties Dealers Automated Quotation System ( N A S D A Q ).
Comment will be received by the Board through May 20, 1974.

The text of the proposed amendments to Regulations G, T, and U is printed below. Com­
ments thereon should be submitted by May 20 and may be sent to our Regulations and Bank
Analysis Department.
A lfred H a y e s ,

President.
[Regs. G, T, and U]
SECURITIES CREDIT TRANSACTIONS
Requirements for Inclusion
and Continued Inclusion on the List of OTC Margin Stocks
Pursuant to the authority of section 7 of the Securi­
ties Exchange Act of 1934 (15 U.S.C. § 7 8 g (1 9 7 0 ))
notice is hereby given that the Board of Governors
proposes to amend Parts 207, 220, and 221 (the re­
quirements for a stock’s inclusion and continued inclu­
sion on the List o f O T C Margin Stocks). The purpose
of the proposed amendments is to incorporate in the
requirements for inclusion and continued inclusion on
the List of O T C Margin Stocks significant changes
which have occurred in the over-the-counter (O T C )
market, particularly the impact of the National A sso­
ciation of Securities Dealers Automated Quotation
System (N A S D A Q ).
P A R T 207— SECURITIES CR ED IT B Y PERSONS
O T H E R T H A N B A N K S, BR O K ERS, OR DEALERS

1.
Paragraphs (d ) and (e ) of section 207.5 would
be amended as set forth b elow :
S E C T IO N 207.5— S U P P L E M E N T
He

*

*

(d ) Requirements for inclusion on list of OTC
margin stock. Except as provided in subparagraph (4 )




of § 2 0 7 .2 (f), such stock shall meet the requirements
that:
(1 ) The stock is subject to registration under sec­
tion 1 2 ( g ) ( 1 ) of the Securities Exchange A ct of 1934
(15 U.S.C. 781(g) ( 1 ) ) , is issued by an insurance com­
pany subject to section 1 2 ( g ) ( 2 ) ( G ) (15 U .S.C.
7 8 /(g ) (2 ) ( G ) ) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment
management company subject to registration pursuant
to section 8 of the Investment Company A ct of 1940
(15 U .S.C. § 80a-8),
( 2 ) Five or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published bona fide bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Se­
curities and Exchange Commission from registration as
a national securities exchange pursuant to section 5 o f
the Securities Exchange A ct of 1934 (15 U .S.C. 78e),
(3 ) There are 1,200 or more holders of record (as
defined in SEC Rule 1 2g5 -l) of the stock who are not

officers, directors, or beneficial owners of 10 percent
or more of the stock,
( 4 ) The issuer is organized under the laws of the
United States or a State9 and it, or a predecessor in
interest, has been in existence for at least 3 years,
( 5 ) The stock has been publicly traded for at least
6 months,
( 6 ) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
(7 ) There are 500,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements that:
( 8 ) The shares described in subparagraph (7 ) of this
paragraph have a market value of at least $5 million,
(9 ) The minimum average bid price of such stock,
as determined by the Board, is at least $10 per share,
and
( 10) The issuer had at least $5 million of capital,
surplus, and undivided profits.
( e ) Requirements for continued inclusion on list
of OTC margin stock. Except as provided in subpara­
graph (4 ) of § 2 0 7 .2 (f), such stock shall meet the re­
quirements that:
( 1 ) The stock continues to be subject to registration
under section 1 2( g) ( 1 ) of the Securities Exchange A ct
of 1934 (15 U .S.C. 7 8 / ( g ) ( l ) ) , is issued by an insur­
ance company subject to section 1 2 ( g ) ( 2 ) ( G ) (15
U.S.C. 7 8 /(g ) (2 ) ( G ) ) that has at least $1 million of
capital and surplus, or is issued by a closed-end invest­
ment management company subject to registration pur­
suant to section 8 of the Investment Company Act of
1940 (15 U .S.C. § 80a-8),
(2 ) Three or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published bona fide bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Se­
curities and Exchange Commission from registration
as a national securities exchange pursuant to section 5
of the Securities Exchange A ct of 1934 (15 U.S.C.
78e),
(3 ) There continue to be 800 or more holders of
record o f the stock who are not officers, directors, or
beneficial owners of 10 per cent or more of the stock,
( 4 ) The issuer continues to be a U. S. corporation,
( 5 ) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
( 6 ) There are 300,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements that:
(7 ) The shares described in subparagraph ( 6 ) of
this paragraph continue to have a market value of at
least $2.5 million,
( 8 ) The minimum average bid price of such stock,
as determined by the Board, is at least $5 per share, and
9 As defined in 15 U.S.C. 78 c(a)(16).




(9 )
The issuer continues to have at least $2.5 million
of capital, surplus, and undivided profits.
P A R T 220— C R ED IT B Y BR OK ERS A N D DEALERS

2.
Paragraphs (h ) and ( i) of section 220.8 would
be amended as set forth b elow :
S E C T IO N 220.8— S U P P L E M E N T
*

*

*

(h ) Requirements for inclusion on list of OTC
margin stock. Except as provided in subparagraph (4 )
of § 2 2 0 .2 (e ), O T C margin stock shall meet the re­
quirements that:
(1 ) The stock is subject to registration under sec­
tion 12( g ) ( 1) of the Securities Exchange A ct of 1934
(15 U.S.C. 781(g) (1 ) ), is issued by an insurance com ­
pany subject to section 1 2 ( g ) ( 2 ) ( G ) (15 U.S.C.
7 8 /(g ) (2 ) ( G ) ) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment
management company subject to registration pursuant
to section 8 of the Investment Company A ct of 1940
(15 U .S.C. § 80a-8),
(2 ) Five or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published bona fide bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Se­
curities and Exchange Commission from registration
as a national securities exchange pursuant to section 5
of the Securities Exchange A ct of 1934 (15 U.S.C.
78e),
(3 ) There are 1,200 or more holders of record (as
defined in SEC Rule 12g5-l) of the stock who are not
officers, directors, or beneficial owners of 10 per cent
or more of the stock,
(4 ) The issuer is organized under the laws of the
United States or a State6 and it, or a predecessor in
interest, has been in existence for at least 3 years,
(5 ) The stock has been publicly traded for at least
6 months,
( 6 ) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
( 7 ) There are 500,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements that:
( 8 ) The shares described in subparagraph (7 ) of this
paragraph have a market value of at least $5 million,
( 9 ) The minimum average bid price of such stock,
as determined by the Board, is at least $10 per share,
and
( 10) The issuer had at least $5 million of capital,
surplus, and undivided profits.
( i) Requirements for continued inclusion on list
of OTC margin stock. Except as provided in subpara­
graph (4 ) of § 2 2 0 .2 (e ), O T C margin stock shall meet
the requirements that:
(1 )
The stock continues to be subject to registration
under section 1 2 ( g ) ( 1 ) of the Securities Exchange Act
of 1934 (15 U.S.C. 7 8 / ( g ) ( l ) ) , is issued by an in0 As defined in 15 U.S.C. 78c(a)(16).

surance company subject to section 1 2 ( g ) ( 2 ) ( G ) (15
U.S.C. 7 8 /(g ) (2 ) ( G ) ) that has at least $1 million o f
capital and surplus, or is issued by a closed-end invest­
ment management company subject to registration pur­
suant to section 8 of the Investment Company Act of
1940 (15 U.S.C. § 80a-8),
(2 ) Three or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published bona fide bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Se­
curities and Exchange Commission from registration
as a national securities exchange pursuant to section 5
of the Securities Exchange A ct of 1934 (15 U.S.C.
78e),
(3 ) There continue to be 800 or more holders of
record of the stock who are not officers, directors, or
beneficial owners of 10 per cent or more of the stock,
(4 ) The issuer continues to be a U. S. corporation,
( 5 ) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
( 6 ) There are 300,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock ; and shall meet two of the
three additional requirements that:
(7 ) The shares described in subparagraph ( 6 ) of
this paragraph continue to have a market value of at
least $2.5 million,
( 8 ) The minimum average bid price of such stock,
as determined by the Board, is at least $5 per share, and
(9 ) The issuer continues to have at least $2.5 million
o f capital, surplus, and undivided profits.
P A R T 221— C R ED IT B Y B A N K S FOR TH E
PURPOSE OF PU RC H ASIN G OR C A R R Y IN G
M A R G IN STOCKS

3.
Paragraphs (d ) and (e ) of section 221.4 would
be amended as set forth b elow :
S E C T IO N 221.4— S U P P L E M E N T
*

*

*

(d ) Requirements for inclusion on list of OTC
margin stock. Except as provided in subparagraph (4 )
o f § 2 2 1 .3 (d ), O T C margin stock shall meet the re­
quirements that:
(1 ) The stock is subject to registration under sec­
tion 1 2 ( g ) ( 1 ) of the Securities Exchange A ct of 1934
(15 U.S.C. 7 8 / ( g ) ( l ) ) , is issued by an insurance
company subject to section 1 2 ( g ) ( 2 ) ( G ) (15 U.S.C.
781(g) (2 ) ( G ) ) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment
management company subject to registration pursuant
to section 8 of the Investment Company Act of 1940
(15 U.S.C. § 8 0 a -8 ),
(2 ) Five or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published bona fide bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Se­
curities and Exchange Commission from registration
as a national securities exchange pursuant to section 5
of the Securities Exchange Act of 1934 (15 U.S.C.
78e),




(3 ) There are 1,200 or more holders of record (as
defined in SEC Rule 1 2g5 -l) o f the stock who are not
officers, directors, or beneficial owners of 10 per cent
or more of the stock,
(4 ) The issuer is organized under the laws of the
United States or a State9 and it, or a predecessor in
interest, has been in existence for at least 3 years,
(5 ) The stock has been publicly traded for at least
6 months,
( 6 ) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
(7 ) There are 500,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements that:
( 8 ) The shares described in subparagraph (7 ) of this
paragraph have a market value of at least $5 million,
(9 ) The minimum average bid price of such stock, as
determined by the Board, is at least $10 per share, and
( 10) The issuer had at least $5 million o f capital,
surplus, and undivided profits.
(e ) Requirements for continued inclusion on list
of OTC margin stock. Except as provided in subpara­
graph (4 ) of § 2 2 1 .3 (d ), O T C margin stock shall meet
the requirements that:
(1 ) The stock continues to be subject to registration
under section 1 2 ( g ) ( 1 ) of the Securities Exchange A ct
of 1934 (15 U .S.C. 7 8 /(g ) ( 1 ) ) , is issued by an in­
surance company subject to section 1 2 ( g ) ( 2 ) ( G )
(15 U .S.C. 781(g) (2 ) ( G ) ) that has at least $1 million
of capital and surplus, or is issued by a closed-end
investment management company subject to registration
pursuant to section 8 of the Investment Company A ct
of 1940 (15 U .S.C. § 8 0 a -8 ),
(2 ) Three or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published bona fide bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Se­
curities and Exchange Commission from registration
as a national securities exchange pursuant to section 5
of the Securities Exchange A ct of 1934 (15 U.S.C.
78e),
(3 ) There continue to be 800 or more holders of
record of the stock who are not officers, directors, or
beneficial owners of 10 per cent or more of the stock,
(4 ) The issuer continues to be a U. S. corporation,
(5 ) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
( 6 ) There are 300,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements that:
(7 ) The shares described in subparagraph ( 6 ) of
this paragraph continue to have a market value of at
least $2.5 million,
( 8 ) The minimum average bid price of such stock,
9 As defined in 15 U.S.C. 78c(a)(16).

as determined by the Board, is at least $5 per share, and
(9 )
The issuer continues to have at least $2.5 million
of capital, surplus, and undivided profits.
*

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*

Interested persons are invited to submit relevant data,
views, or arguments concerning this proposal. Any such
material should be submitted in writing to the Sec­
retary, Board of Governors of the Federal Reserve




System, Washington, D. C. 20551, to be received not
later than May 20, 1974. Such material will be made
available for inspection and copying upon request, e x ­
cept as provided in § 261.6(a) of the Board’s Rules
Regarding Availability of Information,
This notice is published pursuant to section 553(b)
of Title 5, United States Code, and § 262.2(a) o f the
Rules of Procedure of the Board of Governors o f the
Federal Reserve System (12 C.F.R. 2 6 2 .2 (a )).