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F ederal r eser ve b a n k o f D allas DALLAS, TE X A S 75222 Circular No. 72-273 November 28, 1972 NEW MARGIN REQUIREMENTS (Regulations G, T, and U) 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 increased the initial margin requirements for purchasing or carrying stocks from 55 percent to 65 percent, effective November 2 b , 1972. At the same time, the Board increased the required deposit on short sales from 55 percent to 65 percent, also effective November 2 b . No change was made in the 50 per cent margin requirements for purchasing or carrying convertible bonds or in the 70 percent retention requirement applicable to undermargined accounts. Printed copies of the new supplements to Regulations G, T, and. U are enclosed. Yours very truly, P. E. Coldwell, President Enclosures This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION G Effective November 2 4 ,1 9 7 2 S E C 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 subect to § 2 0 7 .1 (d ), shall be 35 per cent of its current m arket value, as determ ined by any reasonable method. (b) Maximum loan value of convertible debt securities subject to § 207.1(d). F o r the purpose of § 207.1, the m axim um loan value of any security against w hich credit is extended pursuant to § 20 7 .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 o r the purpose of § 207.1, in the case of a loan w hich w ould 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 m argin security and of a security against w hich credit is extended pursuant to § 2 0 7 .1 (d ) shall be 70 per cent of its cu rren t m ar ket value, as determ ined by any reasonable method. (d) Requirements for inclusion on list of OTC margin stock. E xcept as provided in subparagraph (4) of § 207.2(f), such stock shall m eet the require m 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. 78/(g) ( 1 ) ) , or if issued by an insurance com pany subject to § 12(g) (2 ) (G ) (15 U.S.C. 78 /(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 b o n a f i d e bids and offers for such stock for their ow n accounts, or the stock is registered on a securities exchange that is exem pted by the Securities and Exchange Com mission from registration as a national securi ties exchange pursuant to § 5 of the Securities E x change A ct of 1934 (15 U.S.C. 7 8e), (3 ) T here are 1,500 or m ore holders of record of the stock who are not officers, directors, or beneficial owners of 10 per cent o r m ore of the stock, (4) T he issuer is organized un der the laws of the U nited States or a State9 and it, or a predeces sor in interest, has been in existence for at least 3 years, (5) T he stock has been publicly traded fo r at least 6 months, and (6) Daily quotations for both bid and asked prices fo r the stock are continuously available to the general public; and shall m eet 3 of the 4 additional requirem ents that: (7) T here are 500,000 o r 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) T he shares described in subparagraph (7 ) of this paragraph have a m arket value in the aggre gate of at least $10 million, (9 ) T he m inim um average bid price of such stock, as determ ined by the B oard in the latest month, is at least $10 per share, and (10 ) T he issuer had at least $5 million of capital, surplus, and undivided profits. (e) Requirements for continued inclusion on list of OTC margin stocks. (1) The stock continues to be subject to regis tration under § 12(g) (1 ) of the Securities Ex change act of 1934 (15 U.S.C. 7 8 /(g) ( 1 ) ) , or if issued by an insurance com pany such issuer con tinues to be subject to § 12(g) (2 ) (G ) (15 9 As defined in 15 U.S.C. 78c(a) (16). (over) U.S.C. 78/(g) (2) ( G ) ) and has at least $1 mil lion of capital and surplus. the general public; and shall m eet 3 of the 4 addi tional requirem ents that: (2) F o u r or m ore dealers stand willing to, and do in fact, m ake a m arket in such stock including m aking regularly published b o n a f i d e bids and of fers fo r such stock for their own accounts, o r the stock is registered on a securities exchange that is exem pted by the Securities and Exchange C om mission from registration as a national securities exchange pursuant to § 5 of the Securities Ex change A ct of 1934 (15 U.S.C. 7 8e), (6) 400,000 or m ore shares m ain outstanding in addition to ficially by officers, directors, or of m ore than 10 per cent of the (3) T here continue to be 1,000 o r m ore holders of record of the stock who are not officers, direc tors, or beneficial owners of 10 p er cent o r m ore of the stock, (8 ) T he m inim um average bid price of such stock, as determ ined by the Board, is at least $5 p er share, and (4) T he issuer continues to be a U . S. corpo ration, (5 ) D aily quotations for both bid and asked prices fo r the stock are continuously available to of such stock re shares held bene beneficial owners stock, (7) T he shares described in subparagraph (6) of this paragraph continue to have a m arket value in the aggregate of at least $5 million, (9 ) The issuer continues to have at least $2.5 million of capital, surplus, and undivided profits. (f) M inim um eq u ity ra tio . T h e m in im u m equity ratio of a credit subject to § 207.1 is 40 percent. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION T Effective Novem ber 24, 1972 SEC T IO N 220.8 — S U P P L E M E N T (a) Maximum loan value for general accounts. T he 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 § 2 20.3(c) and paragraphs (b) and (c) of this section), 35 per cent of the current m arket value of such securities. (2) of an exem pted security held in the account on M arch 11, 1968, and continuously thereafter, the m axim um loan value of the security as deter m ined by the creditor in good faith. (b ) Maximum loan value for a special bond account. T he 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. T he m axim um loan value of a m argin security eligible for a special convert ible security account pursuant to § 22 0.4(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, pursu ant to § 2 2 0.3 (d) ( 3 ), as m argin required for short sales of securities (other than exem pted securities) shall be 65 per cent of the current m arket value of each security. (2) In the case of a special bond account sub ject to § 2 2 0 .4 (i), the retention requirem ent of an exem pted security and of a registered nonequity 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 § 22 0 .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 o r 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 require m ent of a security described in § 2 2 0 .4 (j), shall be 70 p er 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 th at a m ar gin security eligible for 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) Account subject to section 8(g). F o r p u r poses of the com putation described in § 220 .3(b) (1 ) (ii), (1) T he m axim um loan value of a registered non-equity security held in the account on M arch (e) Retention requirement. In the case of an 11, 1968, and continuously thereafter, and of a account which w ould have an excess of the adjusted margin equity security shall be 60 per cent of debit balance of the account over the m axim um the current m arket value of such security, and loan value of the securities in the account follow the m axim um loan value of an exem pted security ing a w ithdraw al of cash or securities from the held in the account on M arch 11, 1968, and con account, pursuant to § 2 2 0.3 (b) ( 2 ) : tinuously thereafter shall be the m axim um loan value of the security as determ ined by th e creditor (1 ) T he “retention requirem ent” of an exem pted in good faith. security held in the general account on M arch 11, 1968, and continuously thereafter, shall be equal (2) T he am ount to be included in th e adjusted to its m axim um loan value as determ ined by the debit balance of the account pursuant to § 220.3 creditor in good faith, and the “retention require ( d ) ( 3 ) as m argin required for short sales of se m ent” of a registered non-equity security held in curities (other than exem pted securities) shall be such account on M arch 11, 1968, and continuously 40 per cent of the current m arket value of each thereafter, and of a m argin security, shall be 70 security. per cent of the current m arket value of the security. (ov er ) (h ) Requirements for inclusion on list of OTC stock, as determ ined by the Board in the latest month, is at least $10 per share, and margin stock. Except as provided in subparagraph (4) of § 2 2 0 .2 (e ), O TC m argin stock shall meet (10 ) The issuer had at least $5 million of capital, the requirem ents that: surplus, and undivided profits. (1 ) T he stock is subject to registration under (i) Requirements for continued inclusion on § 12(g) (1 ) of the Securities Exchange A ct of 1934 list of OTC margin stock. (15 U.S.C. 78/(g) ( 1 ), or if issued by an insur ance com pany subject to § 12(g) (2 ) (G ) (15 (1) T he stock continues to be subject to regis U.S.C. 78/(g) (2) ( G ) ) , the issuer had at least $1 tration und er § 12(g) (1) of the Securities Ex million of capital and surplus. change A ct of 1934 (15 U.S.C. 7 8 /(g) ( 1 ) ) , or if issued by an insurance com pany such issuer (2) Five or m ore dealers stand willing to, and continues to be subject to § 12(g) (2) (G) (15 do in fact, make a m arket in such stock including U.S.C. 78 /(g) (2 ) ( G ) ) and has at least $1 mil making regular published b o n a f i d e bids and lion of capital and surplus. offers for such stock for their own accounts, or the (2) F o u r or m ore dealers stand willing to, and stock is registered on a securities exchange that is do in fact, m ake a m arket in such stock including exem pted by the Securities and Exchange C om making regularly published b o n a f i d e bids and of mission from registration as a national securities exchange pursuant to § 5 of the A ct (15 U.S.C. fers for such stock for their own accounts, or the 78e), stock is registered on a securities exchange that is expected by the Securities and Exchange Com (3) T here are 1,500 or m ore holders of record mission from registration as a national securities of the stock w ho are not officers, directors, or exchange pursuant to § 5 of the Securities Ex beneficial owners of 10 per cent or m ore of the change A ct of 1934 (15 U.S.C. 7 8e), stock, (3 ) There continue to be 1,000 or m ore holders (4) T he issuer is organized under the laws of of record of the stock who are not officers, direc the U nited States or a State6 and it, or a predeces tors, or beneficial owners of 10 per cent or more sor in interest, has been in existence fo r at least of the stock, 3 years, (4 ) T he issuer continues to be a U.S. C orpo (5) The stock has been publicly traded for at ration, least 6 m onths, and ( 5 ), Daily quotations fo r both bid and asked (6) Daily quotations for both bid and asked prices for the stock are continuously available to prices for the stocks are continuously available to the general public; and shall meet 3 of th e 4 the general public; additional requirem ents that: and shall m eet 3 of the 4 additional requirem ents that: (6 ) 400,000 or m ore shares of such stock re main outstanding in addition to shares held bene (7) T here are 500,000 or m ore shares of such ficially by officers, directors, or beneficial owners stock outstanding in addition to shares held bene of m ore than 10 per cent of the stock, ficially by officers, directors, or beneficial owners (7 ) T he shares described in subparagraph (6) of m ore than 10 per cent of the stock, of this paragraph continue to have a m arket value (8) T he shares described in subparagraph (7) in the aggregate of at least $5 million. of this paragraph have a m arket value in the aggre (8) T he m inim um average bid price of such gate of at least $10 million, stock, as determ ined by the Board, is at least $5 (9) T he m inim um average bid price of such per share, and 6As defined in 15 U.S.C. 78c(a) (16). (9) T he issuer continues to have at least $2.5 million of capital, surplus, and undivided profits. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION U Effective November 24, 1972 SEC T IO N 221.4 — S U P P L E M E N T (a) M axim um loan value of stocks. F o r the purpose of § 221.1, the m axim um loan value of any stock, w hether or not registered on a national securities exchange, shall be 35 per cent of its current m arket value, as determ ined by any rea sonable 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 se curity against which credit is extended pursuant to § 221.3 (t) shall be 50 per cent of its current m arket value, as determ ined by any reasonable m ethod. (c) Retention requirement. F o r the purpose of § 221.1, in the case of a credit w hich w ould 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 o r not registered on a national securities exchange, and of a con vertible debt security subject to § 221.3 ( t) , shall be 70 per cent of its curren t m arket value, as de term ined by any reasonable method. (d ) Requirements for inclusion on list of O TC margin stock. E xcept as provided in subparagraph (4) of § 221.3(d), O T C m argin stock shall m eet the requirem ents that: (1) T h e stock is subject to registration under § 12(g) (1 ) of th e Securities Exchange A ct of 1934 (15 U.S.C. 7 8 /(g ) ( 1 ) ) , or if issued by an insurance com pany subject to § 12(g) (2 ) (G ) (15 U.S.C. 7 8 1 ( g ) ( 2 ) ( G ) ) the issuer had at least $1 million of capital and surplus, (2 ) F ive or m ore dealers stand willing to, and do in fact, m ake a m arket in such stock including m aking regularly published b o n a f i d e bids and of fers for such stock fo r their own accounts, or the stock is registered on a securities exchange th at is exem pted by the Securities and Exchange C om mission from registration as a national securities exchange pursuant to § 5 of the A ct (15 U.S.C. 7 8e), (3 ) T here are 1,500 or m ore holders of record of the stock w ho are not officers, directors, or beneficial 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 State12 and it, or a predeces sor in interest, has been in existence fo r at least 3 years, (5) T he stock has been publicly traded for at least 6 months, and (6 ) Daily 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 m ore shares of such stock outstanding in addition to shares held bene ficially by officers, directors, o r 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 aggregate of at least $10 million. (9) T he m inim um average bid price of such stock, as determ ined by the Board in the latest m onth, is at least $10 per share, and (10) The issuer had at least $5 million of capi tal, surplus, and undivided profits. (e) Requirements for continued inclusion on list of OTC margin stock. (1 ) T he stock continues to be subject to regis tration und er § 12(g) (1 ) of the Securities E x change A ct of 1934 (15 U.S.C. 78/(g ) ( 1 ) ) , or if issued by an insurance com pany such issuer con tinues to be subject to § 1 2(g) (2 ) (G ) (15 U.S.C. 1 8 1 ( g ) ( 2 ) ( G ) ) and has at least $1 mil lion of capital and surplus. (2 ) F o u r or m ore dealers stand willing to, and do in fact, m ake a m arket in such stock including i2As defined in 15 U.S.C. 78c(a) (16). (O V E R ) m aking regularly published b o n a f i d e bids and of fers for such stock for their own accounts, or the stock is registered on a securities exchange th at is exem pted by the Securities and Exchange C om mission from registration as a national securities exchange pursuant to § 5 of the Securities E x change A ct of 1934 (15 U.S.C. 7 8 e), (3) T here continue to be 1,000 or m ore holders of record of the stock w ho are not officers, direc tors, or beneficial owners of 10 per cent or m ore of the stock, (4 ) The issuer continues to be a U.S. corpora tion, (5) D aily quotations for both bid and asked prices for the stock are continuously available to the general public; and shall m eet 3 of the 4 addi tional requirem ents that: (6) 400,000 o r m ore shares of such stock re main outstanding in addition to shares held bene ficially by officers, directors, or beneficial owners of m ore than 10 per cent of the stock, (7 ) T he shares described in subparagraph (6) of this paragraph continue to have a m arket value in the aggregate of at least $5 million, (8 ) The m inim um average bid price of such stock, as determ ined by the Board, is at least $5 per share, and (9 ) T he issuer continues to have at least $2.5 million of capital, surplus, and undivided profits. (f) Minimum equity ratio. T he m inim um equity ratio of a credit subject to § 221.1 is 40 percent.