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F ed er a l Re ser ve Ba n k
DALLAS, TEXA S

of

Dallas

75222

C ircular No. 79-138
August 16, 1979

PROPOSED AMENDMENT TO REGULATION T
Loan Value for Mutual Fund Shares and C redit to Exchange Specialists

TO ALL BANKS, BROKERS/DEALERS,
REGULATION G REGISTRANTS,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System, on August 9, 1979,
issued two proposals to amend Regulation T , "C redit by Brokers and Dealers."
The firs t proposal was to permit brokers and dealers to extend and main­
tain credit only on fu lly paid mutual fund shares. A b ro k e r/d e a le r would be prohibited
under the provisions of the Securities Exchange Act and rules of the SEC from giving
credit on the initial purchase of mutual fund shares.
The second proposal is a revision of a proposal published for comment on
A p ril 28, 1977. This proposal w ill permit options specialists to both purchase and
sell short the stock underlying the options in which they specialize, with a 25 percent
margin requirem ent. No maintenance requirem ent is imposed in this revision unless
the account, if sold out, would have an unsecured debit balance. In addition, the re ­
vised proposal would broaden the scope of permitted offset transactions for lower
priced options by redefining the definition of an "in or at the money" option "hedging"
transaction. The proposal also eliminates the requirem ent that a creditor participate
in all joint account arrangements, and permits a specialist or m arket-maker to use
fully paid for government securities as collateral in his account; restricts "free riding"
in a m arket-m aker account; and establishes the conditions under which excess funds
or securities may be withdrawn from the account.
Printed on the following pages and enclosed are copies of the proposals as
they w ill appear in the Federal R egister. Interested persons are invited to submit
comments to the S ecretary, Board of Governors of the Federal Reserve System, Wash­
ington, D .C . 20551, to be received no later than October 15, 1979. Comments should
be in w riting and should refer to Docket Nos. R-0158 and R-0054, respectively.
Any questions on the proposed amendments should be directed to the Con­
sumer A ffairs Section of our Bank Supervision and Regulations Department, Ext. 6171.
Sincerely yours,
Robert H . Boykin
First Vice President
Enclosure

Banks and others are encouraged to use the following incoming WATS 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)

T i t l e 12- Banks and Banking
Chapter I I - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. T; Docket No. R-0158]
PART 220 - CREDIT-BY BROKERS AN DEALERS
D
Loan Value f o r M itual Fund Shares

AGENCY:

Board of Governors of the F ed eral Reserve System.

ACTION:

Proposed r u le .

SUM ARY: The proposal w i l l permit brokers and d e a le r s to extend c r e d i t
M
on f u l l y paid fo r mutual fund sh a re s deposited i n a gen eral acco u n t.
The p re se n t r u le perm its b r o k e r -d e a le r s to extend and m aintain c r e d i t
only on s e c u r i t i e s r e g i s t e r e d on a n a t io n a l s e c u r i t i e s exchange, th ose
included on th e Board 's L i s t of OTC Margin Stock and on c e r t a i n non­
c o n v e r t ib le debt s e c u r i t i e s which a r e trad ed i n th e o v e r -th e -c o u n te r
market.
The Board intends th e proposed r u le to reduce s i g n i f i c a n t l y
th e in e q u it y which e x i s t s between b r o k e r - d e a le r s and banks, who a r e
c u r r e n t ly perm itted to extend c r e d i t on mutual fund s h a re s under
R e g u la tio n U, and le n d e rs r e g i s t e r e d with th e Board under R e g u la tio n
G who have th e same a u t h o r it y .
DATE:

Comments must be r e ceiv e d on o r b e fo r e O ctober 15, 19 79.

ADDRESS: S e c r e t a r y , Board of Governors of th e F e d e r a l Reserve System,
Washington, D. C. 2 0 5 51 . A l l m a t e r ia l should be in w r itin g and should
in c lu d e th e docket number R -0158.
FOR FURTHER INFORMATION CONTACT: P a tsy A b e lle , S e n io r A tto rn e y , or
Theodore W. Prush, S e n io r S e c u r i t i e s R e g u latio n s A n a ly s t, S e c u r i t i e s
R e g u la tio n S e c t i o n , D iv is io n of Banking S u p e rv isio n and R e g u la tio n ,
Board of Governors of th e F e d e r a l Reserve System, Washington, D. C. 20551
(202-452-2781).
SUPPLEMENTARY INFORMATION: In response to a r e q u e st of th e
Investment Company I n s t i t u t e th e Board of Governors proposes to amend
R e g u la tio n T (1 2 CFR 22 0) t o permit brokers and d e a le rs to extend

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and m aintain c r e d i t on s e c u r i t i e s issu e d by open-end investment com­
panies and u n i t investm ent t r u s t s ("mutual fund s h a r e s " ) . The proposal
would permit a b ro k er or d e a le r to extend c r e d i t only on f u l l y paid
f o r mutual fund sh a re s d eposited in a margin acco u n t. Due to the
p r o h ib it io n co n tain ed i n s e c t i o n 1 1 ( d ) ( 1 ) of t h e S e c u r i t i e s Exchange
Act of 1934 c r e d i t may not be extended on th e i n i t i a l purchase of
such s e c u r i t i e s , i n th e absence of an exemption granted by th e
S e c u r i t i e s and Exchange Commission.
Under th e Board 's e x i s t i n g r u le a b r o k e r - d e a le r i s per­
mitted to extend and m aintain c r e d i t only on s e c u r i t i e s r e g i s t e r e d on a
n a t io n a l s e c u r i t i e s exchange, th o se included on th e Board 's L i s t of
OTC Margin S tock and on c e r t a i n n o n -c o n v e r tib le c o r p o ra te debt
s e c u r i t i e s traded i n th e o v e r - th e - c o u n te r market. The Board's proposal
would allow a b r o k e r - d e a le r to extend c r e d i t on mutual funds shares
as w e l l . P r e s e n t ly only banks under th e p r o v isio n s of R e g u la tio n U,
and le n d e rs r e g i s t e r e d with th e Board under R e g u la tio n G a re permitted
to extend and m aintain c r e d i t on investment company sh a re s.
Mutual fund sh ares deposited in a margin account a t a b r o k e r d e a l e r would be s u b je c t to th e same margin requirement as any o th e r margin
s e c u r i t y . The margin requirement i s s e t f o r th i n s e c t i o n 2 2 0 . 8 ( a ) of
R e g u la tio n T and i s p r e s e n tly 5U per c e n t of c u r re n t market v alu e .
To aid i n th e c o n s id e r a t io n of t h i s m a te r ia l by th e Board,
i n t e r e s t e d persons a r e in v it e d to submit r e le v a n t d a ta , views, comments,
o r arguments. Any such m a te ria l should be submitted i n w r itin g to
th e S e c r e t a r y , Board of Governors of th e F ed eral Reserve System,
Washington, D. C. 20551 to be re c e iv e d not l a t e r th an October 15, 1979.
A l l m a t e r ia l submitted should in clu d e th e docket number R -0158.
Such in fo rm a tio n w i l l be made a v a i l a b l e f o r in s p e c t io n and copying
upon re q u est e xce p t as provided i n s e c t i o n 2 6 1 . 6 ( a ) of th e Board's
Rules Regarding A v a i l a b i l i t y of Inform ation (12 CFR 2 6 1 . 6 ( a ) ) .
A ccord in g ly , pursuant to s e c t i o n s 7 and 23 of th e S e c u r i t i e s
Exchange Act of 1934, as amended (15 U .S.C . 78g and w) t h e Board
proposes to amend 12 CFR p a r t 220 as fo llo w s :
S e c t i o n 2 2 0 .2 - D e f i n i t i o n s
*

*

*

*

(f)
The term "margin s e c u r i t y " means any r e g i s t e r e d s e c u r i t y ,
OTC margin s t o c k , OTC margin bond o r any s e c u r i t y issu ed by an open-end
investm ent company o r i n i t investment t r u s t r e g i s t e r e d pursuant to s e c t i o n
8 of th e Investm ent Company Act of 1940 (15 U .S.C . 3 0 a - 8 ) .

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By order of th e Board of Governors of th e F ed eral Reserve
System, August 8 , 197 9.

(sig n e d ) Theodore G. A ll is o n
Theodore G. A ll is o n
S e c r e ta r y of th e Board
(SEAL)

T i t l e 12- Banks and Banking
Chapter I I - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. T; Docket No. R-0054]
PART 220 - CREDIT BY BROKERS A D DEALERS
N
C r e d it t o Exchange S p e c i a l i s t s
AGENCY:

Board of Governors of the F ed eral Reserve System.

ACTION:

Proposed r u le .

SUM ARY: T h is r e v i s i o n of a proposed amendment to the r u le governing
M
c r e d i t to exchange s p e c i a l i s t s , which was published in th e F e d e r a l R e g is t e r
on May 5 , 1977 (4 2 F .R . 2 2 8 9 4 ), c o n ta in s changes based upon comments
r e c e iv e d on t h a t proposal and recommendations of th e S e c u r i t i e s and
Exchange Commission S p e c i a l Study of th e Options Market. As r e v is e d ,
the proposal w i l l permit options s p e c i a l i s t s to both purchase and s e l l
s h o r t th e stock underlying th e options i n which they s p e c i a l i z e , with a
25 percent margin requ irem en t. N maintenance requirement i s imposed
o
i n t h i s r e v i s i o n u n le ss th e accou nt, i f so ld out, would have an unsecured
d e b it b a la n c e . The proposed amendment a ls o re co g n izes ne» exchange r u le s
approved by th e S e c u r i t i e s and Exchange Commission which permit t r a d i t i o n a l
s to c k s p e c i a l i s t s to tra d e i n puts and c a l l s on t h e i r s p e c i a l t y s to c k
and provides comparable r e l i e f f o r such hedging a c t i v i t i e s .
T his proposed
r u le i s intended to give a c e r t a i n amount of f l e x i b i l i t y to th e o p eratio n s
of brokers or d e a le r s who f in a n c e th e p o s it i o n s of th ose persons who
have assumed r e s p o n s i b i l i t y f o r m aintaining continuous markets in
d esig n ated s e c u r i t i e s without p e rm ittin g unwarranted s p e c u la tio n in
th e r e l a t e d s e c u r i t i e s used fo r “hedging".
DATE:

Comments must be re ceiv e d on or b e fo r e October 15, 1979.

ADDRESS: S e c r e t a r y , Board of Governors of th e F e d e r a l Reserve System,
Washington, D. C. 2U551. A l l m a t e r ia l submitted should be in w r itin g and
should in c lu d e th e docket number R-0054.
FOR FURTHER INFORMATION CONTACT: Laura Homer, C hief A tto rn ey , or
Theodore W. Prush, S e n io r S e c u r i t i e s R e g u latio n s A n a ly st, S e c u r i t i e s
R e g u la tio n S e c t i o n , D iv is io n of Banking S u p e rv isio n and R e g u la tio n , Board
of Governors of th e F e d e r a l R eserve System, Washington, D. C. 20551
(202-452-2781).
SUPPLEMENTARY INFORMATION: The May 5 , 1977 proposal was intended to a s s i s t
option s p e c i a l i s t s in performing t h e i r market-making fu n c tio n by p e rm ittin g
them, in c e r t a i n circu m sta n ce s, to purchase or s e l l s h o r t, on p r e f e r e n t i a l

-2 -

c r e d i t term s, th e s e c u r i t i e s underlying th e o ptions in which they s p e c i a l i z e .
A s p e c i a l i s t i s a person r e g i s t e r e d on a s e c u r i t i e s exchange as a s p e c i a l i s t
i n a p a r t i c u l a r s e c u r i t y . In g e n e r a l, a s p e c i a l i s t i s req u ired to a s s i s t
i n m aintaining a f a i r and o r d e r ly market, e i t h e r alone o r i n a co m p e titiv e
framework, f o r t h a t s e c u r i t y on th e f l o o r of th e exchange. Although market
makers i n th e o v e r -th e - c o u n te r market a r e not p r e s e n tly w ith in th e c a te g o r y ,
th e proposed r u le provides f o r t h e i r in c lu s io n i f th e SEC determ ines they
have p a r a l l e l r e s p o n s i b i l i t i e s and f u n c t i o n s . The r e v is e d proposal
would broaden th e scope of perm itted o f f s e t t r a n s a c t io n s f o r lower p riced
options by r e d e fin in g th e d e f i n i t i o n of an " in o r a t th e money" option
"hedging" t r a n s a c t i o n . The proposal a ls o e lim in a te s th e requirement
t h a t a c r e d i t o r p a r t i c i p a t e i n a l l j o i n t account arrangem ents, and permits
a s p e c i a l i s t or market-maker to use f u l l y paid f o r government s e c u r i t i e s
as c o l l a t e r a l i n h i s a c c o u n t.
In a d d itio n , th e proposal r e s t r i c t s
" f r e e - r i d i n g " i n a market-maker accou nt, and e s t a b l i s h e s th e co n d itio n s
under which excess funds o r s e c u r i t i e s may be withdrawn frcm the a cco u n t.
To aid i n th e c o n s id e r a t io n of t h i s m a t e r ia l by tn e Board,
i n t e r e s t e d persons a re in v it e d to submit r e le v a n t d a ta , views, comments,
o r arguments. Any such m a t e r ia l should be submitted in w r itin g to the
S e c r e t a r y , Board of Governors of th e F e d e r a l Reserve System,
Washington, D. C. 20551 to be re ceiv e d not l a t e r than O ctober 15, 1979.
A ll m a te ria l submitted should in clu d e th e docket number R -0054. Such
in fo rm a tio n w i l l be made a v a i l a b l e f o r
i n s p e c t io n and
copying
upon
re q u est except as provided i n s e c t i o n 2 6 1 . 1 ( a ) of th e
B o a r d 's
Rules
Regarding A v a i l a b i l i t y of In fo rm a tio n (12 CFR 2 6 1 . 6 ( a ) ) .
Pursuant to s e c t i o n s 7 and 23 of th e S e c u r i t i e s and Exchange
Act of 1934, as amended (15 U .S.C . 78g
and w) th e Board proposes to amend
12 CFR p a r t 220 as fo llo w s :

22U.4 - SPECIAL ACCDIMTS
*

*

*

*

*

*

*

(g)
S p e c i a l i s t ' s a c c o u n t.
( 1 ) In a s p e c i a l i s t ' s a cco u n t, a
c r e d i t o r may e f f e c t , ca rry o r c l e a r f o r s p e c i a l i s t s who a r e members of a
n a t io n a l s e c u r i t i e s exchange o r r e g i s t e r e d s e c u r i t i e s a s s o c i a t i o n such
member's desig nated s p e c i a l i s t t r a n s a c t i o n s or t r a n s a c t i o n s of any j o i n t
account i n which a l l p a r t i c i p a n t s , or a l l p a r t i c i p a n t s o th e r than th e
c r e d i t o r , a r e r e g i s t e r e d and a c t as s p e c i a l i s t s .
(2 )
A s p e c i a l i s t i n options i s perm itted to e s t a b l i s h i n t h i s
account a long or s h o r t p o s i t i o n i n th e s e c u r i t i e s underlying th e options
i n which th e s p e c i a l i s t makes a market, and a s p e c i a l i s t i n s e c u r i t i e s oth er
than o p tio n s i s perm itted to purchase or w r it e o ptions o v e rly in g th e s e c u r i t i e s
i n which th e s p e c i a l i s t makes a market, only under one o r more of the
fo llo w in g c o n d itio n s (such t r a n s a c t i o n s a r e r e fe r r e d to i n t h i s
paragraph as "p erm itted o f f s e t t r a n s a c t i o n s 1 ) :
'
( i ) The account holds s h o r t o p tio n s p o s it i o n s which
a r e “i n o r a t th e money" and a r e not o f f s e t by long or sh o rt options
p o s it i o n s f o r an equal o r g r e a t e r number of sh a re s of th e same underlying
s e c u r i t i e s which a r e " in o r a t th e money;”
( i i ) The account holds long o p tio n s p o s it i o n s which are
" in o r a t th e money" and a r e not o f f s e t by long o r s h o r t options p o s itio n s
of an equal o r g r e a t e r number of sh ares of th e same underlying s e c u r i t i e s
which a r e " in o r a t th e money;"
(iii)
The account held a s h o r t o p tio n p o s i t i o n a g a in s t
which an e x e r c is e n o t i c e was te n d ere d ;
(iv )

The account held a long o p tio n p o s i t i o n which was

e x e r c is e d ;
(v ) The account holds n e t long p o s it i o n s i n s e c u r i t i e s
o th e r than options i n which th e s p e c i a l i s t makes a market; o r ,
( v i ) The account holds net s h o r t p o s it i o n s in s e c u r i t i e s
o th e r than options i n which th e s p e c i a l i s t makes a market.
(3)
The maximum lo an value of s e c u r i t i e s which may be used
as c o l l a t e r a l i n th e account s h a l l be:
(i)
No more than 100 per ce n t of th e c u r r e n t market
value of long p o s itio n s i n s e c u r i t i e s i n which th e s p e c i a l i s t makes
a market;

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( i i ) No more than 100 per cen t of th e c u rr e n t market
value of any wholly-owned margin s e c u r i t i e s or exempted s e c u r i t i e s
issu ed by th e U. S. Government or a g e n cie s th e r e o f ;
(iii)
75 per c e n t of th e cu rren t market value of any
u nderlying s e c u r i t i e s o r o v e rly in g o ptions th a t a r e purchased and held
i n th e account under th e terms of paragraph ( g ) ( 2 ) of t h i s s e c t i o n and
f o r f i v e f u l l b u sin e ss days t h e r e a f t e r ;
( i v ) The maximum lo an value p re scrib e d by th e Board in
§ 2 2 0 .8 ( t h e Supplement t o R e g u la tio n T) when th e underlying s e c u r i t i e s
o r o v erly in g o p tio n s no lo n g er serve as perm itted o f f s e t s .
( 4 ) The amount to be included i n the ad ju sted d e b it balance
of th e account s h a l l be:
(i)
Not l e s s than 100 per ce n t of th e c u r r e n t market
value of e i t h e r th e s e c u r i t i e s sold s h o r t or th e options w r it te n where
such p o s it i o n s q u a l i f y as s p e c i a l i s t t r a n s a c t i o n s ;
(ii)
125 per ce n t of th e cu rren t market value of th e
s e c u r i t i e s so ld s h o r t o r th e o ptions w r it te n and held in th e account
under th e terms of paragraph ( g ) ( 2 ) of t h i s s e c t i o n and fo r f i v e f u l l
b u sin e s s days t h e r e a f t e r ;
( i i i ) The amount p re scrib e d by th e Board i n §220.8
( t h e Supplement t o R e g u la tio n T) when th e underlying s e c u r i t i e s o r
o v e rly in g options no lo n g e r serv e as perm itted o f f s e t s p lu s, f o r
s h o r t p o s itio n s i n s e c u r i t i e s o th e r than o p tio n s, th e cu rren t
market value of th e s e c u r i t i e s so ld s h o r t .
( 5 ) Except as re q u ired by paragraph ( g ) ( 8 ) , on any day
when a d d itio n a l margin i s requ ired as a r e s u l t of t r a n s a c t i o n s in the
a cco u n t, th e c r e d i t o r s h a l l is s u e a c a l l f o r a d eposit of cash or
s e c u r i t i e s having loan value and allow the s p e c i a l i s t a maximum of
f i v e f u l l business days to make a d eposit s u f f i c i e n t to meet th e c a l l .
( 6 ) On any day when th e account of an op tio ns s p e c i a l i s t
no longer holds an option p o s it i o n a g a in s t which th e underlying s e c u r i t y
perm itted to be purchased o r so ld s h o r t i n the account under the terms
of paragraph ( g ) ( 2 ) of t h i s s e c t i o n can be o f f s e t , or when th e account
of a s p e c i a l i s t i n s e c u r i t i e s o th e r than op tio ns no lo n g er holds s e c u r i t y
p o s itio n s a g a in s t which th e o v e rly in g options perm itted to be purchased
o r w r i t t e n in th e account under th e terms of paragraph ( g ) ( 2 ) of t h i s
s e c t i o n can be o f f s e t , th e c r e d i t o r s h a l l have f i v e f u l l business days
to e i t h e r l i q u i d a t e th e p o s i t i o n or o b ta in a d e p o sit in t o th e account
of cash o r s e c u r i t i e s equal to th e d eposit t h a t would be requ ired to

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e s t a b l i s h such a p o s it i o n i n th e gen eral a cco u n t, reduced by a sum equal
to 25 per c e n t of th e c u r r e n t market value of th e s e c u r i t y . The requirement
to l iq u i d a t e th e p o s itio n o r o b ta in a d d itio n a l margin need not be met i f
a new o f f s e t t i n g p o s i t i o n i s e s t a b lis h e d i n the in t e r im . To prevent “f r e e ­
r id in g " i n th e a cco u n t, a c r e d i t o r who has not o btain ed th e re q u ired
d e p o s it i s p r o h ib ite d f o r a 30 day period from extending any f u r t h e r c r e d i t
to f in a n c e i n th e accou nt t r a n s a c t i o n s i n s e c u r i t i e s i n which the
s p e c i a l i s t i s not r e g i s t e r e d to make a market.
(7)
On any day when a s p e c i a l i s t re q u e s ts a withdrawal of cash
o r s e c u r i t i e s from th e account th e c r e d i t o r s h a l l value n o n - s p e c i a l i s t
s e c u r i t i e s p o s itio n s i n th e account i n accordance with th e p ro v is io n s
of $ 2 20 .8 ( t h e Supplement t o R e g u la tio n T) and value s p e c i a l i s t p o si­
t i o n s on a "good f a i t h " loan b a s i s . Withdrawals s h a l l be permitted to th e
e x t e n t th a t th e d e b it b a la n ce i n tn e account does not exceed th e value
of a l l of th e p o s i t i o n s .
( 3 ) On any day when th e account would l i q u i d a t e to a d e f i c i t ,
th e c r e d i t o r s h a l l not extend any f u r t h e r c r e d i t i n th e acco u n t, and
s h a l l issu e a c a l l f o r a d d it io n a l c o l l a t e r a l which s h a l l be met by noon
of th e fo llow in g business day.
In th e event s u f f i c i e n t c o l l a t e r a l i s
not dep o sited in th e account th e c r e d i t o r s h a l l l i q u i d a t e e x i s t i n g p o s it i o n s
i n th e a c c o u n t.
( 9 ) ( i ) The p r o v is io n s of t h i s paragraph a re a v a i l a b l e to a
s p e c i a l i s t (o r a market-maker designated as a s p e c i a l i s t ) who i s a
member of a n a t i o n a l s e c u r i t i e s exchange or r e g i s t e r e d s e c u r i t i e s a s s o c i a ­
t i o n which submits to th e Board of Governors of th e F e d e r a l Reserve
System r e p o r t s s u i t a b l e f o r supplying c u r r e n t in fo rm atio n regarding the
use of s p e c i a l i s t c r e d i t ;
( i i ) The term " j o i n t accou nt" i s an account i n which the
c r e d i t o r may p a r t i c i p a t e and which by w r it te n agreement permits th e
commingling of th e s e c u r i t y p o s it i o n s of the p a r t i c i p a n t s and provides
fo r a sh a rin g of p r o f i t s and l o s s e s from th e account on some predetermined
ra tio ;
(iii)
The term "underlying s e c u r i t y '1 means th e s e c u r i t y
which w i l l be d e liv e r e d upon e x e r c i s e of th e option and does not in clu d e
a s e c u r i t y c o n v e r t ib le i n t o th e underlying s e c u r i t y ;
( i v ) The term "o v e rly in g option" means ( 1 ) a put option
purchased or a c a l l o p tio n w r i t t e n a g a in s t an e x i s t i n g long p o s i t i o n
i n a s p e c i a l i s t ' s or market-maker's a cco u n t, or ( 2 ) a c a l l option purchased
or a put o p tio n w r i t t e n a g a in s t a s h o r t p o s i t i o n in a s p e c i a l i s t ' s or
market-matcer's a cco u n t.

- 4 -

(v )
The term " i n o r a t th e money1 means, w ith r e s p e c t
'
a c a l l o p tio n , t h a t th e cu rre n t market p r i c e of th e underlying s e c u r i t y
i s not more than th e g r e a t e r of 5 per c e n t o r $ 2 . 5 0 below th e e x e r c i s e
p r ic e of th e o p tio n , and, wLth r e s p e c t to a put o p tio n , th e c u rre n t
market p r i c e of th e underlying s e c u r i t y i s not more than th e g r e a t e r of
5 per c e n t o r $ 2 .5 0 above t h e e x e r c i s e p r ic e of th e o p tio n .
By order of th e Board of Governors of th e F e d e ra l Reserve
System, August 8 , 1979.
(s ig n e d ) Theodore E. A l l i s o n
Theodore E. A l l i s o n
S e c r e t a r y of th e Board
(SEAL)

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