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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).