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federal

R eserve Ba n k o f D allas

DALLAS. TEXAS

75222

Circular No. 82-61
June 1, 1982

MARGIN REGULATIONS
Amendments

TO ALL MEMBER BANKS,
OTHER CREDITORS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has amended
its margin regulations to include the following:
(1)

To broaden the types of collateral in Regula­
tion T against which brokers and dealers may
borrow and lend securities.
This is effective
May 17, 1982.

(2)

To change the criteria for inclusion on the
Board's list of stocks traded over the counter.
This is effective June 12, 1982.

Enclosed are copies of the press releases and Federal Register
material for each set of amendments. Questions concerning the amendments
should be directed to Dean A. Pankonien of this Bank's Legal Department,
Ext. 6171.
Additional copies of this circular and enclosure may be obtained
upon request to the Department of Communications, Financial and Community
Affairs, Ext. 6289.
Sincerely yours,

William H. Wallace
First Vice President
Enclosure

Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERAL RESERVE press release

For immediate release

May 13, 1982

The Federal Reserve Board has amended its Regulation T (extension
of credit on securities by brokers and dealers) to broaden the types of
collateral against which brokers and dealers may borrow and lend securitiesThe revision would permit brokers and dealers to use as collateral
letters of credit issued by Federally insured banks. United States government
securities, certain bank certificates of deposit and bankers acceptances and
letters of credit from foreign banks that have filed a specified agreement
with the Board.
The Board acted after consideration of comment received on proposals
published last November.

The new authority becomes effective May 17, 1982.

Until now, brokers and dealers have been able to borrow and lend securities only
against cash collateral.
The Board's notice in this matter is attached.

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Attachment

FEDERAL RESERVE SYSTEM

Regulation T
(12 CFR Part 220)
[Docket No. R - 0370]
CREDIT B BROKERS A D DEALERS
Y
N
Deposit Required for Borrowing and Lending S e c u r i t ie s
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final Rule.

SU M RY On November 10, 1981, t h e Board published f o r comment a proposal
MA :
to amend section 220.6(h) Regulation T to permit brokers and dealers to
borrow and lend s e c u r i t i e s against l e t t e r s of c r e d i t issued by banks insured
by the Federal Deposit Insurance Corporation and against U.S. government
s e c u r i t i e s (46 Fed. Reg. 55533). The ex is tin g rule requires a deposit of
cash.
The Board has adopted a modified version of i t s November 10, 1981
proposal. The amendment will permit, in addition to cash, the use of s e c u r i t i e s
issued or guaranteed by the United States government or i t s agencies, c e r t a i n
l e t t e r s of c r e d i t , bank CD's and bankers acceptances, as permissible c o l l a t e r a l
in stock lending and borrowing t r a n s a c t i o n s . The amendment w il l also permit
foreign banks t o issue l e t t e r s of c r e d i t in such tr a n s a c t i o n s i f they have
f i l e d with the Board agreements t o comply with the same ru les and regulations
applicable t o member banks in s e c u r i t i e s c r e d i t t r a n s a c t i o n s .
EFFECTIVE DATE:

M 17, 1982.
ay

FOR FURTHER INFORM
ATION CONTACT: Laura Homer, S e c u r i t i e s Credit Officer or
Robert Lord, Attorney, Division of Banking Supervision and Regulation,
Board of Governors of the Federal Reserve System, Washington, D.C.
(202) 452-2781.
SUPPLEM
ENTAL INFORM
ATION: The Board's November 10, 1981 proposal to amend
section 220.6(h) of Regulation T would have expanded acceptable kinds of
c o l l a t e r a l in stock lending t r a n s a c t i o n s to include l e t t e r s of c r e d i t and
U.S. government s e c u r i t i e s . Many commenters believed the Board's proposed
l i m i t a t i o n with respect to acceptable kinds of c o l l a t e r a l was too r e s t r i c ­
t i v e . These commenters suggested t h a t CD's, bankers acceptances, commercial

- 2 In order to give brokers and serv ice bureaus time to ad ju s t t h e i r
programs to r e f l e c t changes in the OTC L i s t , the Board will h e r e a f te r publish
t he O List two weeks in advance of i t s e f f e c t i v e date. This change was
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suggested by many commenters.
The Board wishes to make c l e a r t h a t no ex is tin g O margin stock
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which ceases to meet new O List c r i t e r i a will .be immediately removed from the
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OTC L ist as a r e s u l t of these amendments; the Board intends to "grandfather"
such stocks for two ye ar s. In te res ted persons should also be aware t h a t special
consideration for inclusion on the List will be given to companies which
v o l u n t a r i ly f i l e an appplication to d e l i s t t h e i r s e c u r i t i e s from a national
exchange and are trading in NASDAQ. Such a procedure wi ll prevent any i n t e r ­
ruption in the m argin ability of c e r t a i n s e c u r i t i e s .
EFFECTIVE DATE:

June 12, 1982.

FOR FURTHER INFORM
ATION CONTACT: Jamie Lenoci, Financial Analyst, or Robert Lord,
Attorney, Division of Banking Supervision and Regulation (202) 452-2781.
SUPPLEM
ENTARY INFORM
ATION: In July 1969, pursuant to the Over the Counter
Market Act of 1968, (Pub. L. 90-437), the Board adopted c r i t e r i a which, i f
met by i ss u e r s of over-the-counter stocks, would r e s u l t in the stocks being
placed on the O List and hence afforded the same treatment as exchange
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l i s t e d stocks for purposes of the Board's margin ru les . This meant t h a t
once on the OTC L i s t , over-the-counter stocks were e l i g i b l e for margin
t r a d i n g . In addition to c r i t e r i a for i n i t i a l e l i g i b i l i t y for the O L is t ,
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c r i t e r i a for continued e l i g i b i l i t y for inclusion on the OTC List were also
e s ta bl i sh ed by the Board in 1972.
Changes in the O List c r i t e r i a made today are the r e s u l t of a
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review of recent developments in the s e c u r i t i e s markets, p a r t i c u l a r l y the O
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market, s t a f f experience with the administration of the O List and the pub­
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l i c commentary. Each change i s discussed below.
Foreign Issuers Now E lig ib le for O List Inclusion
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Issuers e l i g i b l e for inclusion on the O List will no longer have
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t o be organized under the laws of the United States or a S t at e. Foreign
iss ue r s were precluded from O List e l i g i b i l i t y in the past because of the
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r e l a t i v e lack of access to such i s s u e r s ' financial information. The st re ng­
thened di sc losure rules of the S ecu ri ti es and Exchange Commission now make
i t possible to obtain comprehensive and up to date financial information on
many foreign i s s u e r s . Because of these improvements, i t is no longer necessary
to r e s t r i c t O L ist candidates to domestic i s s u e r s . Foreign as well as
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domestic iss uer s must, however, be r e g i s t e r e d or f i l e comparable reports
with the S ec u ri ti es and Exchange Commission in order to be e l i g i b l e for
inclusion on the O L ist .
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Eliminating Alternate C r i t e r i a and Making Price and Capital C r i t e r i a Mandatory
Another change in O List c r i t e r i a involves the a l t e r n a t i v e
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requirements with respect to the size and character of the issue and i s s u e r .
Prior to these amendments, a stock could f a i l one of the three c r i t e r i a of a
$5.00 minimum p r i c e , $5 million c a p i t a l , or $5 million in market value and
s t i l l be placed on the O L ist . The c r i t e r i o n requiring an aggregate market
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- 3 -

value of $5 million is of limited value in
since i t only a f f e c t s stocks worth between
past two yea rs, for example, only seven per
O List fa il ed the aggregate market value
TC
of t h i s t e s t i s no longer j u s t i f i e d .

determining OTC List e l i g i b i l i t y
$5 and $10 per share. During the
cent of the stocks added to the
t e s t . Accordingly, th e retention

The remaining a l t e r n a t e c r i t e r i a for both i n i t i a l and continued
inclusion on the O List -- r e l a t i n g to price per share and minimum ca p i t al —
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are now made mandatory. Doing so will lessen the e f f e c t of systemic f l u c tu a ­
tions which have i n d i r e c t l y been a f fe c tin g the size and composition of the
O L ist .
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The Board o r i g i n a l l y proposed to lower the price and capi tal c r i ­
t e r i a for continued l i s t i n g from $3 and $2.5 million to $1 and $1 m il li on ,
re sp ec ti ve ly . Some public comment, however, r e f l e c t e d the view t h a t the pro­
posed c r i t e r i a may encourage the use of speculative c r e d i t . The Board has
decided, t h e r e f o r e , to adopt a higher continued l i s t i n g price c r i t e r i o n than
th a t proposed. The new c r i t e r i o n will s t i l l be lower than the c r i t e r i o n
ex is tin g before these amendments. The capital c r i t e r i o n for i n i t i a l and
continued l i s t i n g has been reduced to $4 million and $1 m il l i o n , respec ti vel y.
The i n i t i a l l i s t i n g p r ic e per share c r i t e r i o n will remain at $5. The continued
l i s t i n g price per share c r i t e r i o n has been reduced to $2. The i n i t i a l l i s t i n g
publicly held share c r i t e r i o n has been reduced to 400,000 shares. These
changes will make the Board's O List c r i t e r i a more comparable to the l i s t i n g
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c r i t e r i a of the American Stock Exchange.
(NOTE: The remainder of t h i s notice may be obtained from the Federal
Reserve Board or the Federal Reserve Banks.)

For immediate release

May 13, 1982

The Federal Reserve Board today adopted amendments to its margin
regulations that change the criteria for inclusion on the Board's list of stocks
traded over the counter (OTC list).
Inclusion of a stock on this list makes it possible for brokers and
dealers to lend on the stock in conformance to the Board's margin requirements.
About 1,500 stocks are on the Board's OTC list.
Further, the Board decided that in the future changes in the OTC list,
which is updated three times yearly, will become effective two weeks after
publication rather than immediately.
The changes adopted by the Board, after consideration of comment
received on proposals published last November, are:
1.

Inclusion on this list of eligible foreign securities.

2. Setting of mandatory price and capital criteria for determining
OTC list eligibility (formerly, stocks, to be eligible, could satisfy any two out
of three criteria: price, capital or market value).
3.

Reduction of requirements for initial listing as follows:
— Capital requirement of $4 million (rather than $5 million), and
— Requirement for the number of shares held publicly lowered
to 400,000 (rather than 500,000).

4.

Reduction of requirements for continued listing as follows:
— Capital, $1 million (rather than $2.5 million).
— Listed price, $2 (rather than $5).

Stocks that no longer meet eligibility requirements under the new
criteria for listing on the Board's OTC list will be retained on the list for
two years.

The Board believes the revised criteria reflect changes, since the

last major revision of the criteria in 1976, in stock market conditions
and exchange practices.
The introduction to the Board's notice in this matter is attached.

The

text of the notice may be obtained from the Board or the Federal Reserve Banks.

FEDERAL RESERVE SYSTEM

Regulations G, T and U
[12 CFR 207, 220 and 221]
[Docket No. R-0372]
SECURITIES CREDIT TRANSACTIONS
Revision of C r i t e r i a for I n i t i a l and Continued Inclusion
on the List of O Margin Stocks
TC
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final Rule.

SU M RY On November 24, 1981, t h e Board published f or comment (46 Fed. Reg.
MA :
57532) a proposal to amend i t s c r i t e r i a for i n i t i a l and continued inclusion on
the List of O Margin Stocks ("OTC L i s t " ) .
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Brokers and dealers may not
extend c r e d i t on stocks which are traded over-the-counter unless such stocks
appear on the O L i s t . Loans by banks and other lenders t h a t are used to
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purchase stocks appearing on the OTC List are subject to the Board's margin
requirements i f the loans are secured by margin stock.
In i t s announcement, the Board proposed to revise OTC List c r i t e r i a
in t h r ee important r esp ect s. F i r s t , equity s e c u r i t i e s of foreign issuers
and American Depository Receipts would, for the f i r s t time, be e l i g i b l e for
O L ist i nc lus io n. Second, c e r t a i n a l t e r n a t i v e c r i t e r i a with respect to
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price and c a p i t a l were to be made mandatory. Third, a proposal was made to
relax capital and p r i ce c r i t e r i a to more closely resemble the l i s t i n g re qu ire ­
ments of major stock exchanges.
In i t s action today, the Board adopts revisions to O List
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c r i t e r i a in s u b s t a n t i a l l y the same form as proposed. S p e c i f i c a l l y , the O
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L ist c r i t e r i a are amended to (1) permit the inclusion of s e c u r i t i e s of foreign
i ss u e r s r e g i s t e r e d with the S ec u r i t i es and Exchange Commission, (2) eliminate
the a l t e r n a t i v e market value c r i t e r i o n and make the pr ice and ca p i t al c r i t e r i a
mandatory, (3) reduce the i n i t i a l l i s t i n g ca pi ta l and pu bl icl y -h eld share
c r i t e r i a to $4 million and 400,000 shares, r es p ec ti v el y , and (4) reduce the
continued l i s t i n g price and ca p i ta l c r i t e r i a to $2 and $1 m i l l i o n , respec ti vel y.
In response to public commentary, th e price requirement for
continued l i s t i n g adopted by the Board today is higher than th a t o r i g i n a l ly
proposed f o r comment but lower than t h a t in the exi sti ng ru l e . The Board
wishes t o make c l e a r t h a t i t s action today with respect to the inclusion of
foreign iss uer s on the O List i s limited to those iss uers who have ac tu al ly
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r e g i s te r e d with the S ec u ri ti es and Exchange Commission or f i l e repo rts comparable
to those f i l e d by domestic companies.

-

2 -

paper and equity s e c u r i t i e s be included as permissible c o l l a t e r a l in t r a n s a c ­
t i o n s governed by section 220.6(h). The Board has determined t h a t c e r ta i n
negotiable CD's and bankers acceptances along with l e t t e r s of c r e d i t and U.S.
government s e c u r i t i e s , will be pennitted as acceptable c o l l a t e r a l when s e c u r i t i e s
are lent or borrowed by brokers and dea lers.
The Board's proposal to limit use of l e t t e r s of c r e d i t in stock lend­
ing and borrowing tr a n s a c t i o n s to l e t t e r s issued by‘ FDIC-insured banks was
opposed by many foreign banks doing business in the United S t a te s. These banks
regarded the Board proposal as discriminatory and unnecessary. The Board believes
t h a t t h e i r p o sit io n i s not without m er it , and will permit use of foreign bank
l e t t e r s of c r e d i t for purposes of section 22 0 .6 (h ) -i f such bank has f i l e d a
Form F.R. T-2 with the Board agreeing, to comply with a l l laws r e l a t i n g to se c u ri ­
t i e s c r e d i t t h a t are applic abl e to t h e i r U.S. coun ter par ts . Only foreign banks
with branches or agencies t h a t are supervised and examined by S tat e or Federal
banking a u t h o r i t i e s are e l i g i b l e to f i l e such agreements.
In i t s orig ina l proposal, the Board c e r t i f i e d f or the purpose of
5 U.S.C. § 605(b) t h a t i t s action would not have a s i g n i f i c a n t impact on a
su b s t an t i al number of small e n t i t i e s . N comments were received which would
o
lead the Board to conclude t h a t the adoption of t h i s amendment would have a
s i g n i f i c a n t impact on a su bs tan ti al number of small e n t i t i e s .
List of Subject Headings in 12 CFR Part 220
Banks, banking; Brokers; Credit; Federal Reserve System; Margin; Margin
Requirements; Reporting Requirements; Se cur ities
Accordingly, pursuant to §§ 7 and 23 of the S ec ur i t i es Exchange Act
of 1934 (15 U.S.C. §§ 78g, 78w), the Board amends § 220.6(h) of Regulation T
(12 CFR Part 220) to read as follows:
"(h) Borrowing and lending s e c u r i t i e s . Without regard to th e other
provisions of t h i s p a r t , a c r e d i t o r may borrow or lend s e c u r i t i e s for the pur­
pose of making delivery of the s e c u r i t i e s in the case of short s a l e s , f a i l u r e
to receive s e c u r i t i e s required to be del ivered, or other si m il ar s i t u a t i o n s .
Each borrowing sh a ll be secured by a deposit of one or more of the following:
cash, s e c u r i t i e s issued or guaranteed by the United States government or i t s
agencies, negotiable bank c e r t i f i c a t e s of deposit and bankers acceptances
issued by banking i n s t i t u t i o n s in the United States and payable in the United
S t a t e s , or irrevocable l e t t e r s of c r e d i t issued by a bank insured by the Federal
Deposit Insurance Corporation or a foreign bank th at has f i l e d an agreement
with the Board on Form F.R. T-2. Such deposit made with the lender of the
s e c u r i t i e s shall have at a l l times a value a t l e a s t equal to 100 percent of
the market value of the s e c u r i t i e s borrowed, computed as of the close of the
preceding business day."
O B Control Number:
M

Approval by O B i s pending.
M

Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1980 (P.L. 96-511),
the reporting or recordkeeping provisions t h a t are included in t h i s regulation
have been or will be submitted for approval to the Office of Management and
Budget (OMB).

- 3 -

By order of the Board of Governors of the Federal Reserve System,
M 12, 1982.
ay
(signed) William W Wiles
,
William W Wiles
.
Secretary of the Board
[SEAL]


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102