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F ederal R eserve Bank o f Dallas
DALLAS, TEX AS

75222

Circular No. 70-111
May 11, 1970

NEW MARGIN REQUIREMENTS (REGULATIONS G, T AND U)
ARBITRAGE AMENDMENTS (REGULATIONS T AND U)

To All Banks, Broker/Dealers, Regulation G Registrants and
Others Concerned in the Eleventh Federal Reserve District:
On May 6, we distributed Circular 70-108 advising of the re­
duction of the Federal Reserve margin requirements under Regulations G,
T and U. The margin requirement for stock is now 65 percent, and for
convertible securities 50 percent. The retention requirement for under­
margined accounts remains 70 percent. Printed copies of the new supple­
ments to Regulations G, T and U, effective May 6, 1970, are enclosed.

Reserve
tions T
Purpose
release

In a separate action, the Board of Governors of the Federal
System, on May l^jyp^ja-nded the arbitrage provisions £>f Regula­
(Credit by Brokers and Dealers) and U (Credit by Banks for the
of Purchasing or Carrying Margin Stocks). The Board's press
on this action reads in part:

"Transactions in a special arbitrage account are exempt
from margin requirements. One condition for the exemption is
that the security purchased must be exchangeable or convertible
within 90 days into the security sold in creating the arbitrage.
The amendment permits a l80-day exchange or conversion period
when the security purchased is solely a due bill or other evi­
dence of the right to receive the security that is sold, and
the security sold is trading as a when-issued security."
Copies of these amendments are also enclosed.
For your convenience, you will find on the reverse a list of the
items which should be included in current versions of Regulations G, T and
U. The Regulations Department of this Bank will be pleased to supply any
items necessary to bring your copies up to date.
Yours very truly,
P. E. Coldwell
President
Enclosures (5)

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

CURRENT VERSIONS OF REGULATIONS G, T AND U

Current versions of Regulations G? T, and U should now consist of the
following items:
Regulation G
Effective July 8,

Pamphlet

1969

Effective May 6,

Amendment to section 207.

1970

Effective August 13,

Supplement

1969

Regulation T
Effective July 8, 1969

Pamphlet
Supplement

Effective May 6, 1970

Amendment to section 220 . k

Effective May 1, 1970

Amendment to section 220.7

Effective May 15, 1970

Regulation U
P am p h let

Supplement
Amendment to section 221.3
Amendment to section 221.2

Effective July 8,

1969

Effective May 6, 1970
Effective August 13,

1969

Effective May 1, 1970

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

CREDIT BY BANKS FOR THE PURPOSE
OF PURCHASING OR CARRYING MARGIN STOCKS

A M E N D M E N T TO R E G U L A T IO N U

Effective M ay 1, 1970, paragraph (j) of section
221.2 is am ended to read as follows:

(j) A ny credit extended to a m em ber of a
national securities exchange for the purpose o f
financing his or his custom ers’ bona fide arbitrage
transactions in securities. F o r the purposes of this
paragraph, the term “arbitrage” m eans (1 ) a
purchase o r sale of a security in one m arket to ­
gether with an offsetting sale or purchase of the
same security in a different m arket at as nearly
the same tim e as practicable, fo r the purpose of
taking advantage of a difference in prices in the

two m arkets, or (2 ) a purchase of a security
which is, w ithout restriction other than the pay ­
m e n t o f m o n e y , e x c h a n g e a b le o r c o n v e rtib le
within 90 calendar days following the date of its
purchase into a second security together with an
offsetting sale at o r about the same tim e of such
second security, fo r the purpose of taking ad­
vantage of a disparity in the prices of the two
securities, except that when the security purchased
is solely a due bill for, or other evidence of the
right to receive, only the security th a t is sold,
and the security that is sold is trading as a whenissued security, such period shall be 180 calendar
days; and

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

CREDIT BY BROKERS AND DEALERS

A M E N D M E N T TO R E G U L A T IO N T

Effective M ay 1, 1970, paragraph (d) of section
220.4 is am ended to read as follows:

(d) Special arbitrage account. In a special arbi­
trage account, a m em ber of a national securities
exchange m ay effect and finance for any custom er
bona fide arbitrage transactions in securities. F o r
the purpose of this paragraph, the term “arbi­
trage” m eans (1) a purchase or sale of a security
in one m arket together with an offsetting sale or
purchase of the same security in a different m arket
at as nearly the same time as practicable, for the
purpose of taking advantage of a difference in

prices in the tw o m arkets, or (2 ) a purchase of
a security which is, w ithout restriction other than
the paym ent of money, exchangeable or con­
vertible within 90 calendar days following the
date of its purchase into a second security to ­
gether with an offsetting sale at or about the same
time of such second security fo r the purpose of
taking advantage of a disparity in the prices of
the two securities, except th at w hen the security
purchased is solely a due bill for, or other evidence
of the right to receive, only the security that is
sold, and the security that is sold is trading as a
when-issued security, such period shall be 180
calendar days.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION G
Effective May 6, 1970
S EC T IO N 207.5— S U P P L E M E N T
(a) Maximum loan value of margin securities.
F o r the purpose of § 207.1, the m axim um loan
value of any m argin security, except convertible
securities subject to § 2 0 7 .1 (d ), shall be 35 per
cent of its current m arket value, as determ ined by
any reasonable m ethod.
(b) Maximum loan value of convertible debt
securities subject to § 207.1(d). F or the purpose of
§ 207.1, the m axim um loan value of any security
against which credit is extended pursuant to
§ 207.1 (d ) shall be 50 per cent of its current m ar­
ket value, as determ ined by any reasonable method.
(c) Retention requirement. F or the purpose of
§ 207.1, in the case of a loan which would exceed
the m axim um loan value of the collateral following
a w ithdraw al of collateral, the “retention require­
m ent” of a m argin security and of a security against
which credit is extended pursuant to § 2 07.1(d)
shall be 70 per cent of its current m arket value, as
determ ined by any reasonable method.
(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 m eet the re­
quirem ents that:
(1) The stock is subject to registration under
§ 12(g) (1 ) of the Securities Exchange A ct of 1934
(15 U.S.C. 7 8 / ( g ) ( l ) ) , or if issued by an insur­
ance com pany subject to § 1 2 ( g ) ( 2 ) ( G ) (15
U.S.C. 7 8 7 ( g ) ( 2 ) ( G ) ) the issuer had at least $1
million of capital and surplus,
(2) Five or m ore dealers stand willing to, and
do in fact, m ake a m arket 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 Securities and Exchange Com m is­
sion from registration as a national securities ex­
change pursuant to section 5 of the Securities and
Exchange A ct of 1934 (15 U.S.C. 78e),
(3 ) T here are 1,500 or m ore holders of record
of the stock who are not officers, directors, or bene­
ficial owners of 10 p er cent or m ore of the stock,
(4) T he issuer is organized under the laws of
the U nited States or a State9 and it, or a prede­
cessor in interest, has been in existence for at least
3 years,
(5) The stock has been publicly traded for at
least 6 months, and
(6 ) D aily quotations for both bid and asked
prices for the stock are continuously available to
the general public;
and shall meet 3 of the 4 additional require­
ments that:
(7) T here are 500,000 or m ore shares of such
stock outstanding in addition to shares held bene­
ficially by officers, directors, or beneficial owners
of m ore than 10 per cent of the stock,
(8 ) The shares described in subparagraph (7)
of this paragraph have a m arket value in the
aggregate of at least $10 million,
(9) The m inim um average bid price of such
stock, as determ ined by the Board in the latest
month, is at least $10 per share, and
(1 0) The issuer had at least $5 million of capi­
tal, surplus, and undivided profits.
9 As defined in 15 U.S.C. 78c(a)(16).

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION T
Effective May 6,1970
S EC T IO N 220.8— S U P P L E M E N T
(a) Maximum loan value for general accounts.
The m axim um loan value of securities in a general
account subject to § 220.3 shall be:
(1) of a registered non-equity security held in
the account on M arch 11, 1968, and continuously
thereafter, and of a m argin equity security (except
as provided in § 220.3 (c) and paragraphs (b) and
(c) of this section), 35 per cent of the current
m arket value of such securities.
(2) of an exempted security held in the account
on M arch 11, 1968, and continuously thereafter,
the m axim um loan value of the security as deter­
mined by the creditor in good faith.
(b) Maximum loan value for a special bond
account. The m axim um loan value of an exempted
security and of a registered non-equity security
pursuant to § 220.4 (i) shall be the m axim um loan
value of the security as determ ined by the creditor
in good faith.
(c) Maximum loan value for special convertible
debt security account. The m axim um loan value of
a m argin security eligible fo r a special convertible
security account pursuant to § 220.4(j) shall be 50
per cent of the current m arket value of the security.
(d) Margin required for short sales. The
am ount to be included in the adjusted debit balance
of a general account, pursuant to § 220.3 (d) ( 3 ), as
margin required fo r short sales of securities (other
than exempted securities) shall be 65 per cent of
the current m arket value of each security.
(e) Retention requirement. In the case of an
account w hich would have an excess of the ad­
justed debit balance of the account over the m axi­
m um loan value of the securities in the account
following a withdrawal of cash or securities from
the account, pursuant to § 2 20.3(b) (2) :

(2) In the case of a special bond account sub­
ject to § 2 2 0 .4 (i), the retention requirem ent of an
exempted security and of a registered non-equity
security shall be equal to the m axim um loan value
of the security.
(3 ) In the case of a special convertible security
account subject to § 220.4(j) w hich w ould have an
excess of the adjusted debit balance of the account
over the m axim um loan value of the securities in
the account following a w ithdraw al of cash or
securities from the account, the retention require­
m ent of a security having loan value in the account
shall be 70 per cent of the current m arket value of
the security.
(4) F or the purpose of effecting a transfer from
a general account to a special convertible security
account subject to § 2 2 0 .4 (j), the retention re­
quirem ent of a security described in § 2 2 0 .4 (j),
shall be 70 per cent of its current m arket value.
(f) Security having no loan value in general
account. N o securities other than an exempted
security or registered non-equity security held in
the account on M arch 11, 1968, and continuously
thereafter, and a m argin security, shall have any
loan value in a general account except that a m ar­
gin security eligible fo r the special convertible
security account pursuant to § 220.4 (j) shall have
loan value only if held in the account on M arch 11,
1968, and continuously thereafter.
(g) Requirements for inclusion on list of OTC
margin stock. Except as provided in subparagraph
(4) of § 2 2 0 .2 (e ), O TC m argin stock shall meet
the requirem ents that:

(1) The stock is subject to registration under
§ 1 2 (g )(1 ) of the Securities Exchange A ct of
1934 (15 U.S.C. 7 8 7 (g )(1 )), or if issued by an in­
surance com pany subject to § 12(g)(2)(G) (15
U.S.C. 787(g) (2) ( G ) ) , the issuer had at least $1
(1)
The “retention requirem ent” of an exempted
million of capital and surplus,
security held in the general account on M arch 11,
1968, and continuously thereafter, shall be equal to
(2) Five or m ore dealers stand willing to, and
its m axim um loan value as determ ined by the credi­
do in fact, m ake a m arket in such stock including
tor in good faith, and the “retention requirem ent”
making regularly published bona fide bids and
of a registered non-equity security held in such
offers for such stock for their own accounts, or the
account on M arch 11, 1968, and continuously
stock is registered on a securities exchange that is
thereafter, and of a m argin security, shall be 70 per
exem pted by the Securities and Exchange Com mis­
cent of the current m arket value of the security.
sion from registration as a national securities ex­

change pursuant to section 5 of the A ct (15 U.S.C.
78e),
(3) T here are 1,500 or m ore holders of record
of the stock w ho are not officers, directors, or bene­
ficial owners of 10 per cent or m ore of the stock,
(4) The issuer is organized under the laws of
the U nited States or a State6 and it, or a prede­
cessor in interest, has been in existence fo r at least
3 years,
(5) The stock has been publicly traded fo r at
least 6 months, and
(6) D aily quotations for both bid and asked
prices for the stocks are continuously available to
the general public;
6As defined in 15 U.S.C. 78c(a)(16).

and shall m eet 3 of the 4 additional requirem ents
that:
(7) T here are 500,000 or m ore shares of such
stock outstanding in addition to shares held benefi­
cially by officers, directors, or beneficial owners of
m ore than 10 p er cent of the stock,
(8) The shares described in subparagraph (7 )
of this paragraph have a m arket value in the aggre­
gate of at least $10 million,
(9) The m inim um average bid price of such
stock, as determ ined by the Board in the latest
month, is at least $10 p er share, and
(10)
The issuer had at least $5 million of capi­
tal, surplus, and undivided profits.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION U
Effective May 6, 1970
SEC T IO N 221.4 — S U P P L E M E N T
(a) Maximum loan value of stocks. F o r the p u r­
pose of § 221.1, the m axim um loan value of any
stock, w hether or not registered on a national se­
curities exchange, shall be 35 per cent of its cur­
rent m arket value, as determ ined by any reasonable
method.
(b) Maximum loan value of convertible debt
securities subject to § 221.3(t). F o r the purpose of
§ 221.3 ( t) , the m axim um loan value of any secu­
rity against which credit is extended pursuant to
§ 221.3 (t) shall be 50 per cent of its current m ar­
ket value, as determ ined by any reasonable method.
(c) Retention requirement. F or the purpose of
§ 221.1, in the case of a credit which would exceed
the m axim um loan value of the collateral follow­
ing a w ithdraw al of collateral, the “retention re­
quirem ent” of a stock, w hether or not registered
on a national securities exchange, and of a conver­
tible debt security subject to § 221.3 ( t) , shall be
70 per cent of its current m arket value, as deter­
m ined by any reasonable method.
(d ) Requirement for inclusion on list of OTC
margin stock. Except as provided in subparagraph
(4) of § 2 2 1 .3 (d ), O TC m argin stock shall meet
the requirem ents that:
(1) T he stock is subject to registration under
§ 12(g) (1 ) of the Securities Exchange A ct of 1934
(15 U.S.C. 7 8 7 ( g )( 1 )) , or if issued by an insur­
ance com pany subject to § 1 2 ( g ) ( 2 ) ( G ) (15
U.S.C. 7 8 7 ( g ) ( 2 ) ( G ) ) the issuer had at least $1
million of capital and surplus,
(2 ) Five or m ore dealers stand willing to, and
do in fact, m ake a m arket in such stock including
m aking 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 Securities and Exchange Com m is­
sion from registration as a national securities ex­
change pursuant to section 5 of the A ct (15 U.S.C.
78e),
(3 ) T here are 1,500 or m ore holders of record
of the stock who are not officers, directors, or bene­
ficial owners of 10 per cent or m ore of the stock,
(4 ) The issuer is organized under the laws of
the U nited States or a State9 and it, or a prede­
cessor in interest, has been in existence for at least
3 years.
(5) The stock has been publicly traded for at
least 6 months, and
(6 ) D aily quotations for both bid and asked
prices for the stock are continuously available to
the general public;
and shall meet 3 of the 4 additional requirem ents
that:
(7) T here are 500,000 or more shares of such
stock outstanding in addition to shares held bene­
ficially by officers, directors, or beneficial owners
of m ore than 10 per cent of the stock,
(8) T he shares described in subparagraph (7 )
of this paragraph have a m arket value in the ag­
gregate of at least $10 million,
(9 ) The m inim um average bid price of such
stock, as determ ined by the Board in the latest
month, is at least $10 p er share, and
(10) The issuer had at least $5 million of capi­
tal, surplus, and undivided profits.
9 As defined in 15 U.S.C. 78c(a)(16).

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