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F E D E R A L R E S E R V E B A N K OF D A L L A S Station K, Dallas, T e x a s 7 5 2 2 2 C i r c u l a r No. 84-97 September 28, 1984 TO: Al l member b an ks , b r o k e r s , d e a l e r s , and o t h e r s co n ce rn e d in t h e E l e v e n t h F e d e r a l Res er ve D i s t r i c t ATTENTION: Chief F in a n c ia l O f fi c e r SUBJECT: Amendments to Regulations G, T and U concerning Securities Credit Transactions and Margin Securities SUMMARY: The Board o f Governors o f t h e F e d e r a l Res er ve System i s amending, e f f e c t i v e November 13, 1984, its R e g u l a t i o n s G, T and U t o a u t o m a t i c a l l y p e r m i t b r o k e r s and d e a l e r s t o lend on over-the-counter (OTC) s e c u r i t i e s d e s i g n a t e d f o r t r a d i n g in t h e N a t i o n a l Market System (NMS) p o r t i o n o f NASDAQ. The amendments s t a t e t h a t OTC s e c u r i t i e s w i l l a u t o m a t i c a l l y become "margin s e c u r i t i e s " upon t h e e f f e c t i v e d a t e o f t h e i r d e s i g n a t i o n by t h e N a t i o n a l A s s o c i a t i o n o f S e c u r i t i e s D e a l e r s as NMS s e c u r i t i e s . These amendments a r e s u b s t a n t i a l l y t h e same as pro po s ed i n our C i r c u l a r No. 84-47 d a t e d September 4, 1984. ATTACHMENTS: B o a r d ' s p r e s s r e l e a s e and m a t e r i a l as p u b l i c a t i o n in t h e F e d e r a l R e g i s t e r MORE INFORMATION: Legal Dep ar tmen t , E x t e n s i o n 6171 ADDITIONAL COPIES: P u b l i c A f f a i r s Depar t ment , E x t e n s i o n 6289 submitted Banks and others are encouraged to use the fo llo w in g incom ing WATS numbers in c on tacting this Bank: 1-800-442-7140 for and 1-800-527-9200 (interstate). placed locally,Bank pleaseofuse 651 plus the extension referred to above. This publication(intrastate) was digitized and made available by For the calls Federal Reserve Dallas' Historical Library (FedHistory@dal.frb.org) FEDERA^RESERVEpressrelease For immediate release September 10, 1984 The Federal Reserve Board today announced adoption of amendments to its Regulations G, T and U (Margin Requirements) to automatically permit brokers and dealers to lend on over-the-counter securities designated for trading in the National Market System (NMS) portion of NASDAQ^/ in conformance with the Board's margin requirements. The amendments are effective November 13, 1984. The Board acted after consideration of comment received on proposals published March 12, 1984. The proposed amendments were adopted substantially as proposed. The National Market System list of securities was developed in response to a legislative mandate to the Securities and Exchange Commission (SEC) to facilitate and regulate development of a market system linking securities markets through uniform reporting systems. Unlike other securities traded in the over-the-counter (OTC) market "last sale" reporting is required of National Market System securities. Stocks are included in the National Market System under two sets of criteria developed by the NASD with the approval of the SEC. Currently, there are 1,050 stocks traded in the National Market System. The amendments provide that OTC securities will automatically become "margin securities" upon the effective date of their designation by the NASD as NMS securities. In order to keep the public fully informed as to which OTC stocks are subject to margin, the Board will publish quarterly a V National Association of Securities Dealers Automated Quotations System. - List of OTC Margin Stocks. 2- This will include stocks that have been designated NMS securities in the interim between Board publication of its OTC list of margin stocks. Information concerning interim designations of NMS securities, or other OTC securities subject to margin, may be obtained frcm the Public Reference Branch of the Securites and Exchange Conmission (Tel. 202-272-7450) and fran the Federal Reserve Board (Tel. 202-452-2781) or from the Federal Reserve Banks. Language has been added to Regulations U to protect banks and to Regulation G to protect lenders under that regulation who extend credit dn securities in the interim between Board publication of OTC stock lists without notification that an OTC stock has been designated an NMS security. The Board's notice is attached. - Attachment 0- FEDERAL RESERVE SYSTEM R e g u l a t i o n s G, T and U [12 CFR 207, 220 and 221] [Docket No. R-0512] SECURITIES CREDIT TRANSACTIONS Amendment t o d e f i n i t i o n s of "margin s e c u r i t y " and "margin s t o c k " and r e l a t e d t e c h n i c a l amendments AGENCY: Board o f Governors o f t h e F e d e r a l Reser ve System. ACTION: Fi n al Ru l e . SUMMARY: The Board i s amending t h e d e f i n i t i o n of "margin s e c u r i t y " i n R e g u l a t i o n T and t h e d e f i n i t i o n s of "margin s t o c k " i n R e g u l a t i o n s G and U t o g i v e a u t o m a t i c m a r g i n a b i l i t y t o any o v e r - t h e - c o u n t e r s e c u r i t y i d e n t i f i e d as a Nat i on al Market System (NMS) s e c u r i t y in a c c o r d a n c e wi t h a d e s i g n a t i o n plan of t h e Nat i on al A s s o c i a t i o n o f S e c u r i t i e s D e a l e r s (NASD) t h a t has been appr oved by t h e S e c u r i t i e s and Exchange Commission (SEC). on a new q u a r t e r l y s c h e d u l e . The Board w i l l p u b l i s h t h e L i s t o f OTC Margin Stocks The B o a r d ' s L i s t w i l l i n c l u d e NMS and non-NMS s e c u r i t i e s t h a t o t h e r w i s e meet t h e c r i t e r i a f o r m a r g i n a b i l i t y e s t a b l i s h e d by t h e Board. R e g u l a t i o n s G and U a r e a l s o bei ng amended t o p r o v i d e p r o t e c t i o n f o r l e n d e r s who may n ot have n o t i c e of a s t o c k ' s d e s i g n a t i o n between t h e B o a r d ' s quarterly publication dates. EFFECTIVE DATE: November 13, 1984. FOR FURTHER INFORMATION CONTACT: Robert S. P l o t k i n , A s s i s t a n t D i r e c t o r , Laura Homer, S e c u r i t i e s C r e d i t O f f i c e r , o r Jami e L e n o c i , F i n a n c i a l A n a l y s t , D i v i s i o n o f Banking S u p e r v i s i o n and R e g u l a t i o n (202) 452-2781. SUPPLEMENTARY INFORMATION: I. H i s t o r y o f Amendment In r e s p o n s e t o a p e t i t i o n of t h e NASD, t h e Board p u b l i s h e d a p r o posed amendment t o t h e margin r e g u l a t i o n s f o r comment t h a t would g i v e a u t o m a t i c - 2 - m a r g i n a b i l i t y t o any o v e r - t h e - c o u n t e r s e c u r i t y d e s i g n a t e d as a N a t i o n a l Market System (NMS) s e c u r i t y (49 Fed. Reg. 9741, March 15, 1 984 ) . The Board i s a d o p t i n g t h e amendment i n s u b s t a n t i a l l y t h e same form a s p r o p o s e d . However, due t o comments r e c e i v e d , t h e amendment has been t e c h n i c a l l y r e v i s e d t o a d d r e s s some o f t h e c on ce r n s o f t h e r e s p o n d e n t s . In p a r t i c u l a r , la n g uag e has been added t o R e g u l a t i o n s G and U t o p r o v i d e p r o t e c t i o n a g a i n s t i n a d v e r t e n t v i o l a t i o n s by l e n d e r s c ov er e d by t h o s e r e g u l a t i o n s who may n o t have a c t u a l n o t i c e t h a t a p a r t i c u l a r s t o c k has been d e s i g n a t e d as an NMS s e c u r i t y . A s i m i l a r provision is not be i ng added t o R e g u l a t i o n T b e c a us e a b r o k e r i s p r o h i b i t e d by s t a t u t e from e x t e n d i n g c r e d i t on s e c u r i t i e s t h a t a r e not m a r g i n a b l e ; t h e r e f o r e such a p r o vision is unnecessary. D e t e r m i n a t i o n o f S t a t u s o f OTC S t o c k ' s M a r g i n a b i l i t y An OTC s t o c k can become m a r g i n a b l e (1) by me e t i ng t h e c r i t e r i a s p e c i f i e d by t h e Board i n i t s margin r e g u l a t i o n s ( R e g u l a t i o n s G, T and U) and a c t u a l i n c l u s i o n on t h e B o a r d ' s L i s t o f OTC Margin S t o c k s , o r (2) by b e i ng d e s i g n a t e d as an NMS s e c u r i t y i n a c c o r d a n c e w i t h t h e d e s i g n a t i o n p l a n o f t h e NASD t h a t has been approved by t h e SEC. Under SEC Rule H A a 2 - l (17 CFR 2 4 0 . 1 1 Aa2-1) , t h e q u a l i f i c a t i o n d a t e f o r d e t e r m i n i n g a " T i e r 1" NMS s e c u r i t y (which i s a mandatory d e s i g n a t i o n ) i s t h e l a s t b u s i n e s s day of t h e c a l e n d a r quarter. To become a " T i e r 2" NMS s e c u r i t y (which i s a v o l u n t a r y d e s i g n a t i o n ) t h e i s s u e r must meet " T i e r 2" q u a l i f y i n g c r i t e r i a and must a p p l y f o r t h e NMS designation. Under t h e NASD's p r e s e n t p r o c e d u r e s , i t i s c o n t e m p l a t e d t h a t , in g e n e r a l , " T i e r 2" NMS s t o c k s w i l l be added n o t more t h a n once e v e r y o t h e r week. N o t i c e w i l l be gi ve n t o t h e i n d u s t r y and r e g u l a t o r s by t h e NASD a t l e a s t one week p r i o r t o t h e e f f e c t i v e d a t e of t h e d e s i g n a t i o n whi ch, i n t h e c a s e o f an initial b as i s . p u b l i c o f f e r i n g of a s e c u r i t y , may be on a "when, a s , and i f i s s u e d " - 3 - In o r d e r t o keep t h e p u b l i c f u l l y aware o f which OTC s t o c k s a r e m a r g i n a b l e , t h e Board w i l l p u b l i s h q u a r t e r l y a co mp le t e L i s t o f OTC Margin Stocks. Thi s h a r d - c o p y p u b l i c a t i o n w i l l be on f i l e a t t h e F e d e r a l R e g i s t e r and can be o b t a i n e d from t h e Board or any F e d e r a l Res er ve Bank. In a d d i t i o n , t h e Board w i l l p u b l i s h a Supplement of a d d i t i o n s t o and d e l e t i o n s from t h e L i s t o f OTC Margin Stocks on a q u a r t e r l y b a s i s i n t h e F e d e r a l R e g i s t e r . Thi s S u p p l e ment w i l l i n c l u d e c u r r e n t NMS s e c u r i t i e s as well as t h o s e s e c u r i t i e s deemed m a r g i n a b l e u nd e r t h e B o a r d ' s margin c r i t e r i a . The p u b l i c a t i o n of t h e s e S u p p l e ments w i l l be ti med t o c o i n c i d e w i t h t h e NASD's q u a r t e r l y i n c l u s i o n o f T i e r 1 NMS s e c u r i t i e s . Since t h e n e x t d e s i g n a t i o n of t h e T i e r 1 NMS s e c u r i t i e s i s e x p e c t e d t o be e f f e c t i v e on November 13, 1984, t h e B o a r d ' s Supplement t o t h e L i s t , o r d i n a r i l y e f f e c t i v e in O c t o b e r , w i l l be d e l a y e d t o c o i n c i d e w i t h t h i s November d a t e . F u t u r e Supplements o f a d d i t i o n s t o and d e l e t i o n s from t h e L i s t w i l l be p u b l i s h e d q u a r t e r l y in t h e F e d e r a l R e g i s t e r a t t h e end o f J a n u a r y , A p r i l , J u l y and O ct o ber w i th t h e usual two-week d e l a y e d e f f e c t i v e d a t e . There w i l l be no SEC p u b l i c a t i o n o f NMS s e c u r i t i e s i n t h e F e d er al R e g i s t e r as cont em p lated in the Board's o rig in a l proposal. A d d i t i o n a l OTC s e c u r i t i e s may be d e s i g n a t e d by t h e NASD as NMS s e c u r i t i e s i n t h e i n t e r i m between Board p u b l i c a t i o n s . These s e c u r i t i e s w i l l be a u t o m a t i c a l l y m a r g i n a b l e a t b r o k e r - d e a l e r s upon t h e e f f e c t i v e d a t e o f t h e i r designation. A l i s t of t h e s e s e c u r i t i e s and t h e e f f e c t i v e d a t e of t h e i r d e s i g n a t i o n w i l l be a v a i l a b l e a t t h e P u b l i c R e f e r e n c e Branch o f t h e SEC and c o p i e s w i l l be hand d e l i v e r e d t o t h e Board and d e l i v e r e d by o v e r n i g h t e x p r e s s t o each of t h e Res er ve Banks. Banks, b r o k e r - d e a l e r s , R e g u l a t i o n G l e n d e r s and o t h e r p e r s o n s can v e r i f y whet her an OTC s t o c k i s an NMS s e c u r i t y by c a l l i n g t h e SEC a t i t s P u b l i c R e f er e n c e Br an ch , 450 5 t h S t r e e t , N.W., Was hi ngton, D.C. 20549 - ( ( 202 ) 27 2 - 74 5 0) . 4 - The margin s t a t u s of any OTC s t o c k can be o b t a i n e d by c a l l ing t h e S e c u r i t i e s R e g u l a t i o n S e c t i o n i n t h e B o a r d ' s D i v i s i o n o f Banking S up er v i s i o n and R e g u l a t i o n ( ( 2 0 2) 452- 2781) o r by c a l l i n g any F e d e r a l Res er ve Bank. FINAL REGULATORY FLEXIBILITY ANALYSIS: The Board i s amending i t s r e g u l a t i o n s t o g i v e a u t o m a t i c m a r g i n a b i l i t y t o s e c u r i t i e s t h a t a r e d e s i g n a t e d as q u a l i f i e d f o r t r a d i n g i n t h e N a t i on al Market System. The i n i t i a l regulatory f l e x i b i l i t y analysis indicated t h a t t h e amendment was n o t e x p e c t e d t o have any a d v e r s e impact on a s u b s t a n t i a l number o f small e n t i t i e s . A comment on t h e pro p o s ed change r a i s e d t h e q u e s t i o n o f w h e t h e r t h e Board d i s c r i m i n a t e d a g a i n s t small b u s i n e s s by n o t a d o p t i n g t h e o r i g i n a l NASD p r o p o s a l , which asked f o r a u t o m a t i c m a r g i n a b i l i t y t o s e c u r i t i e s on t h e e n t i r e N a ti o n a l L i s t . The d e c i s i o n t o p e r m i t N at i ona l Market System s e c u r i t i e s t o be m a r g i n a b l e was bas ed on s t a f f a n a l y s i s i n d i c a t i n g t h a t t h e l i q u i d i t y and o t h e r c h a r a c t e r i s t i c s of NMS s e c u r i t i e s compare f a v o r a b l y wi t h t h o s e o f e x c h a n ge traded s e c u r it ie s . A ma j o r d i f f e r e n c e between NMS and o t h e r N at i on a l L i s t s e c u r i t i e s i s t h a t t h e l a t t e r do n o t have " l a s t s a l e " r e p o r t i n g , deemed n e c e s s a r y by s t o c k exchanges t o a s s u r e t h e a v a i l a b i l i t y o f r e l i a b l e p r i c e i n f o r m a t i o n . In t h e a bs en ce of such i n f o r m a t i o n and in l i g h t of o t h e r e v i d e n c e s u g g e s t i n g d i f f e r e n c e s in l i q u i d i t y among N a t i on a l L i s t s e c u r i t i e s , t h e Board d e c i d e d t o g i v e a u t o m a t i c m a r g i n a b i l i t y a t t h e p r e s e n t t i m e o n l y t o N a ti o n a l L i s t s e c u r i t i e s t r a d e d i n t h e NMS. There i s no e v i d e n c e i n d i c a t i n g t h a t t h e r e g u l a t o r y change w i l l have a s i g n i f i c a n t impact on a s u b s t a n t i a l number of small b u s i n e s s e s . If s t o c k s of small e n t i t i e s a r e t r a d e d i n t h e N at i on al Market System, t h e y w i l l be m a r g i n a b l e a t a b r o k e r a g e f i r m a f t e r t h e r e g u l a t o r y change becomes e f f e c t i v e . Small e n t i t i e s and o t h e r companies c o m p r i s i n g t h e a p p r o x i m a t e l y 800 N a ti o n a l L i s t f i r m s t h a t a r e n o t on t h e NMS and t h a t a r e no t on t h e B o a r d ' s L i s t o f OTC Margin Stocks w i l l n ot be a u t o m a t i c a l l y m a r g i n a b l e b u t , o f c o u r s e , may become m a r g i n a b l e s u b j e c t t o s a t i s f y i n g Board OTC c r i t e r i a . From t h e i n d i v i d u a l c o r p o r a t i o n ' s p e r s p e c t i v e , t h e economic e f f e c t o f m a r g i n a b i l i t y i s mixed. When s e c u r i t i e s become e l i g i b l e as c o l l a t e r a l i n a margin a c c o u n t a t a b r o k e r a g e f i r m , t h e y a l s o become s u b j e c t t o r e g u l a t o r y l i m i t a t i o n s on t h e amount of c r e d i t t h a t may be e x t e n d e d a g a i n s t t h e i r v a l u e by banks and o t h e r l e n d e r s ; such l i m i t a t i o n s do n o t a p p l y t o n o n ma rg in ab l e s t o c k s a t banks and o t h e r l e n d e r s . L i s t o f S u b j e c t s i n 12 CFR PART 207 Banks, Banki ng, C r e d i t , F e de r a l Reser ve System, Mar gi n, Margin R e q u i r e m e n t s , R e p o r t i n g and Recor d k e epi n g R e q u i r e m e n t s , S e c u r i t i e s . L i s t o f S u b j e c t s i n 12 CFR PART 220 Banks, Banki ng, B r o k e r s , C r e d i t , F e de r a l Res er ve System, Mar gin, Margin R e q u i r e me n t s , I n v e s t m e n t s , R e p o r t i n g and Recor dk e ep i n g R e q u i r e m e n t s , Securities. L i s t o f S u b j e c t s i n 12 CFR PART 221 Banks, Banki ng, C r e d i t , F e d e r a l Reser ve System, Mar gi n, Margin R e q u i r e m e n t s , R e p o r t i n g and Recor d k e epi n g R e q u i r e m e n t s , S e c u r i t i e s . A c c o r d i n g l y , p u r s u a n t t o §§ 7 and 23 of t h e S e c u r i t i e s Exchange Act of 1934, as amended (15 U. S.C. §§ 78g and 78w), t h e Board amends R e g u l a t i o n s G, T and U (12 CFR 207, 220 and 221, r e s p e c t i v e l y ) i n t h e f o l l o w i n g manner: S e c t i o n 2 07. 2 - - " D e f i n i t i o n s " , i s amended by a dd i ng a new p a r a g r a p h ( i ) ( 3 ) , and renumbering ( i ) ( 3 ) , ( 4) and (5) t o ( i ) ( 4 ) , (5) and ( 6 ) . 6 - S e c t i o n 207. 3 - - "General R e q u i r m e n t s " , i s amended by a ddi ng a new paragraph (q ). S e c t i o n 220. 2 — " D e f i n i t i o n s " , i s amended by i n s e r t i n g a new it em in p ar ag r a p h ( o ) , between t h e second and t h i r d it em and numbering t h e i t ems ( o ) ( l ) , ( 2 ) , ( 3 ) , ( 4 ) and ( 5 ) . S e c t i o n 221. 2 - - " D e f i n i t i o n s " , i s amended by addi ng a new p a r a g r a p h ( h ) ( 3 ) and renumbering ( h ) ( 3 ) , ( 4) and (5) t o ( h ) ( 4 ) , (5) and ( 6 ) . S e c t i o n 221. 3 - - "General R e q u i r e m e n t s " , i s amended by a dd i ng a new paragraph (1 ). The amended p a r a g r a p h s i n R e g u l a t i o n s G, T and U r e a d as f o l l o w s : PART 207 — SECURITIES CREDIT BY PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS * * * * * * * * S e c t i o n 207. 2 - - D e f i n i t i o n s * (1) * "Margin s t o c k " means: (1) any e q u i t y s e c u r i t y r e g i s t e r e d or havi ng u n l i s t e d t r a d i n g p r i v i l e g e s on a n a t i o n a l s e c u r i t i e s excha nge; (2) any OTC margin s t o c k ; (3) any OTC s e c u r i t y d e s i g n a t e d as q u a l i f i e d f o r t r a d i n g in the N a t i on al Market System under a d e s i g n a t i o n pl a n approved by t h e S e c u r i t i e s and Exchange Commission (NMS S e c u r i t y ) ; (4) any d eb t s e c u r i t y c o n v e r t i b l e i n t o a margin s t o c k o r c a r r y i ng a w a r r a n t o r r i g h t t o s u b s c r i b e t o o r p u r c h a s e a margin s t o c k ; (5) any w a r r a n t o r r i g h t t o s u b s c r i b e t o or p u r c h a s e a margin (6) any s e c u r i t y i s s u e d by an i n v e s t m e n t company s t o c k ; or r e g i s t e r e d u nder s e c t i o n 8 of t h e I n ve s t m e n t Company Act o f 1940 (15 U. S. C. 8 0 a - 8 ) , o t h e r than: - (1) 7 - a company l i c e n s e d u n d e r t h e Small B u s i n e s s I n v e s t m e n t Company Act o f 1958, as amended (15 U. S. C. 6 6 1 ) ; or (ii) a company which has a t l e a s t 95 p e r c e n t o f i t s a s s e t s c o n t i n u o u sl y i n v e s t e d in exempted s e c u r i t i e s ( as d e f i n e d i n 15 U.S.C. 7 8 c ( 1 2 ) ) • S e c t i o n 207.3 — General Requi rement s ★ (q) ★ ★ ★ ★ Lack o f n o t i c e o f NMS s e c u r i t y d e s i g n a t i o n . Failure to tre a t an NMS s e c u r i t y as a margin s t o c k i n c o n n e c t i o n wi t h an e x t e n s i o n o f c r e d i t s h a l l n o t be deemed a v i o l a t i o n o f t h i s p a r t i f t h e d e s i g n a t i o n i s made between q u a r t e r l y p u b l i c a t i o n s of t h e B o a r d ' s L i s t o f OTC Margin S t ock s and t h e l e n d e r does n ot have a c t u a l n o t i c e of t h e d e s i g n a t i o n . PART 220 — CREDIT BY BROKERS AND DEALERS ★ ★ ★ ★ ★ ★ ★ ★ S e c t i o n 220. 2 - - D e f i n i t i o n s ★ * (o) "Margin s e c u r i t y " means (1) any r e g i s t e r e d s e c u r i t y ; (2) any OTC margin s t o c k ; (3) any OTC margin bond; (4) any OTC s e c u r i t y d e s i g n a t e d as q u a l i f i e d for t r a d i n g in t h e N a t i on al Market System under a d e s i g n a t i o n p l a n approved by t h e S e c u r i t i e s and Exchange Commission (NMS s e c u r i t y ) ; or (5) any s e c u r i t y i s s u e d by e i t h e r an open-end i n v e s t m e n t company o r u n i t i n v e s t m e n t t r u s t which i s r e g i s t e r e d under s e c t i o n 8 o f t h e I n v es tm e n t Company Act o f 1940 (15 U.S.C. 8 0 a - 8 ) . PART 221 - - CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCKS ★ * * * * - 8 - S e c t i o n 2 21. 2 - - D e f i n i t i o n s * (h) * * "Margin s t o c k " means: * * (1) any e q u i t y s e c u r i t y r e g i s t e r e d or havi ng u n l i s t e d t r a d i n g p r i v i l e g e s on a n a t i o n a l s e c u r i t i e s ex ch a n g e; (2) any OTC margin s t o c k ; (3) any OTC s e c u r i t y d e s i g n a t e d as q u a l i f i e d f o r tr a d in g in the N a t i on a l Market System under a d e s i g n a t i o n pl a n approved by t h e S e c u r i t i e s and Exchange Commission (NMS s e c u r i t y ) ; (4) any d eb t s e c u r i t y c o n v e r t i b l e i n t o a margin s t o c k o r c a r r y ing a w a r r a n t or r i g h t t o s u b s c r i b e t o o r p u r c h a s e a margin s t o c k ; (5) any w a r r a n t o r r i g h t t o s u b s c r i b e t o o r p u r c h a s e a margin (6) any s e c u r i t y i s s u e d by an i n v e s t m e n t company s t o c k ; or r e g i s t e r e d u nder s e c t i o n 8 of t h e I n ve s t me n t Company Act o f 1940 (15 U. S. C. 8 0 a - 8 ) , o t h e r (i) than: a company l i c e n s e d u nder t h e Small B u s i n es s I n v e s t m e n t Company Act of 1958, as amended (15 U. S. C. 6 6 1 ) ; o r (ii) a company which has a t l e a s t 95 p e r c e n t of i t s a s s e t s c o n t i n u o u s l y i n v e s t e d in exempted s e c u r i t i e s ( as d e f i n e d i n 15 U. S. C. 7 8 c ( 1 2 ) ) . S e c t i o n 2 21. 3 - - General Requ i remen t s ★ (1) * ★ ★ Lack of n o t i c e o f NMS s e c u r i t y d e s i g n a t i o n . ★ Failure to tre a t an NMS s e c u r i t y as a margin s t o c k i n c o n n e c t i o n wi t h an e x t e n s i o n of c r e d i t s h a l l n o t be deemed a v i o l a t i o n of t h i s p a r t i f t h e d e s i g n a t i o n i s made between q u a r t e r l y p u b l i c a t i o n s of t h e B o a r d ' s L i s t o f OTC Margin S t o c k s and t h e bank does no t have a c t u a l n o t i c e of t h e d e s i g n a t i o n . - 9 - By o r d e r o f t h e Board o f Governors o f t h e F e d e r a l Res er ve System, September 5, 1984. (signed) William W. Wiles Wi ll i am W. Wiles S e c r e t a r y o f t h e Board
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