Full text of District Notices (Federal Reserve Bank of Dallas) : Amendments to Regulations G, T and U (OTC Margin Stock Delisting Criteria) (Proposed Amendments Concerning Same-Day Substitution Rule), Circular No. 72-88

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FED ERA L RESERVE B AN K OF DALLAS

DALLAS, TEXAS

75222
Circular Wo. 72-88
May 11, 1972

AMENDMENTS TO REGULATIONS G, T, AND U
(OTC Margin Stock Delisting Criteria)
(Proposed Amendments Concerning Same-Day
Substitution Rule)

To All Banks, Broker/Dealers, Regulation G Registrants
and Others Concerned in the Eleventh Federal Reserve District:
The Board of Governors of the Federal Reserve System
issued, effective May 15, 1972, the criteria that over-the-counter
(OTC) stocks must continue to meet in order to remain on the List
of OTC Margin Stocks.
The criteria employed in selecting OTC stocks for inclu­
sion on the list were announced on July 9, 1969* The delisting
criteria are substantially the same as those previously forwarded
to you under Circular No. 72-^3, dated February 29, 1972.
The new criteria are represented in amendments to the
supplements to Regulations G, T and U, which are reprinted in their
entirety. Please note, however, that there are no changes in
present maximum loan values or retention requirements.
In addition, the Board proposed on April 28, 1972, a
technical change in the margin regulations designed to improve the
quality of certain types of stock market credit. The proposed
change would strengthen the equity position of low-margin accounts
whenever offsetting sales and purchases of stock collateral are
made on the same day. Comments on this matter should be submitted
to the Secretary, Board of Governors of the Federal ReserveSystem,
Washington, D. C. 20551 to be received not later than June 2, 1972.
A copy of the proposal is enclosed.
A current version of the margin regulations consists of
the pamphlet containing Regulations G, T, U and X, dated November,
1971, and the enclosed amendments and supplements to Regulations
G, T and U, effective May 15, 1972.
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

AMENDMENTS

(e) OTC margin stock.***

REGULATION G
Effective May 15, 1972, paragraph (f) of sec­
tion 207.2 is amended as follows:
SECTION 207.2 — DEFINITIONS
For the purpose of this part, unless the context
otherwise requires:

* * * * *

(3)
The Board shall from time to time remove
from the list described in subparagraph (2) of this
paragraph (e) stocks that cease to:
(i) Exist or of which the issuer ceases to exist,
or
(ii) Meet substantially the provisions of sub­
paragraph (1) of this paragraph (e) and of
§ 220.8(h) (the Supplement to Regulation T ).

(f) OTC margin stock.* * *
(3)
The Board shall from time to time remove
from the list described in subparagraph (2) of this
paragraph (f) stocks that cease to:
(i) Exist or of which the issuer ceases to exist,

REGULATION U

or
(ii) Meet substantially the provisions of sub­
paragraph (1) of this paragraph (f) and § 207.5(e)
(the Supplement to Regulation G).

Effective May 15, 1972, paragraph (d) of sec­
tion 221.3 is amended as follows:
SECTION 221.3 — MISCELLANEOUS
PROVISIONS

*

*

*

*

%

«

*

*

*

*

(d) OTC margin stock.***
REGULATION T
Effective May 15, 1972, paragraph (e) of sec­
tion 220.2 is amended as follows:

(3)
The Board shall from time to time remove
from the list described in subparagraph (2) of this
paragraph (d) stocks that cease to:
(i) Exist or of which the issuer ceases to exist,
or

SECTION 207.2 — DEFINITIONS
For the purposes of this part, unless the context
otherwise requires:

(ii) Meet substantially the provisions of sub­
paragraph (1) of this paragraph (d) and of
§ 221.4(e) (the Supplement to Regulation U ).

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION G
Effective May 15,1972*
SECTION 207.5 — SUPPLEMENT
(a) Maximum loan value of margin securities.
For the purpose of § 207.1, the maximum loan
value of any margin security, except convertible
securities subject to § 207.1(d), shall be 45 per
cent of its current market value, as determined by
any reasonable method.
(b) Maximum loan value of convertible debt
securities subject to § 207.1(d). For the purpose of
§ 207.1, the maximum loan value of any security
against which credit is extended pursuant to
§ 207.1(d) shall be 50 per cent of its current mar­
ket value, as determined by any reasonable method.
(c) Retention requirement. For the purpose of
§ 207.1, in the case of a loan which would exceed
the maximum loan value of the collateral follow­
ing a withdrawal of collateral, the “retention re­
quirement” of a margin security and of a security
against which credit is extended pursuant to
§ 207.1(d) shall be 70 per cent of its current mar­
ket value, as determined by any reasonable method.
(d) Requirements for inclusion on list of OTC
margin stock. Except as provided in subparagraph
(4) of § 207.2(f), such stock shall meet the require­
ments that:
(1) The stock is subject to registration under
§ 12(g) (1) of the Securities Exchange Act of 1934
(15 U.S.C. 78/(g) (1 )), or if issued by an insurance
company 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 more dealers stand willing to, and
do in fact, make a market 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
Commission from registration as a national securi­
ties exchange pursuant to § 5 of the Securities Ex­
change Act of 1934 (15 U.S.C. 78e),
*Effective date of addition o f P arag rap h (e ). T here have been
no changes in m axim um loan values o r retention requirem ent
since D ecem ber 6* 1971.

(3) There are 1,500 or more holders of record
of the stock who are not officers, directors, or
beneficial owners of 10 per cent or more of the
stock,
(4) The issuer is organized under the laws of
the United States or a State9 and it, or a predeces­
sor 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) 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 requirements
that:
(7) There are 500,000 or more shares of such
stock outstanding in addition to shares held bene­
ficially by officers, directors, or beneficial owners
of more than 10 per cent of the stock,
(8) The shares described in subparagraph (7)
of this paragraph have a market value in the aggre­
gate of at least $10 million,
(9) The minimum average bid price of such
stock, as determined by the Board in the latest
month, is at least $10 per share, and
(10) The 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. 787(g) (1 )), or
if issued by an insurance company such issuer con­
tinues to be subject to § 12(g) (2) (G) (15
8 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.
(2) Four or more dealers stand willing to, and
do in fact, make a market in such stock including
making regularly published bona fide bids and of­
fers 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
mission from registration as a national securities
exchange pursuant to § 5 of the Securities Ex­
change Act of 1934 (15 U.S.C. 78e),
(3) There continue to be 1,000 or more holders
of record of the stock who are not officers, direc­
tors, or beneficial owners of 10 per cent or more
of the stock,
(4) The issuer continues to be a U. S. corpo­
ration,

(5) 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 addi­
tional requirements that:
(6) 400,000 or more shares
main outstanding in addition to
ficially by officers, directors, or
of more than 10 per cent of the

of such stock re­
shares held bene­
beneficial owners
stock,

(7) The shares described in subparagraph (6)
of this paragraph continue to have a market value
in the aggregate of at least $5 million,
(8) The minimum average bid price of such
stock, as determined by the Board, is at least $5
per share, and
(9) The 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 T
Effective May 15,1972*
SECTION 220.8 — SUPPLEMENT
(a) Maximum loan value for general accounts.
The maximum 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 March 11, 1968, and continuously
thereafter, and of a margin equity security (except
as provided in § 220.3(c) and paragraphs (b) and
(c) of this section), 45 per cent of the current mar­
ket value of such securities.
(2) of an exempted security held in the account
on March 11, 1968, and continuously thereafter,
the maximum loan value of the security as deter­
mined by the creditor in good faith.
(b) Maximum loan value for a special bond ac­
count. The maximum loan value of an exempted
security and of a registered non-equity security
pursuant to § 220.4(i) shall be the maximum loan
value of the security as determined by the creditor
in good faith.
(c) Maximum loan value for special convertible
debt security account. The maximum loan value
of a margin security eligible for a special convert­
ible security account pursuant to § 220.4(j) shall
be 50 per cent of the current market value of the
security.
(d) Margin required for short sales. The amount
to be included in the adjusted debit balance of a
general account, pursuant to § 220.3(d)(3), as mar­
gin required for short sales of securities (other
than exempted securities) shall be 55 per cent of
the current market value of each security.

(2) In the case of a special bond account sub­
ject to § 220.4(i), the retention requirement of an
exempted security and of a registered nonequity
security shall be equal to the maximum loan value
of the security.
(3) In the case of a special convertible security
account subject to § 220.4(j) which would have an
excess of the adjusted debit balance of the account
over the maximum loan value of the securities in
the account following a withdrawal of cash or
securities from the account, the retention require­
ment of a security having loan value in the account
shall be 70 per cent of the current market value
of the security.
(4) For the purpose of effecting a transfer from
a general account to a special convertible security
account subject to § 220.4(j), the retention require­
ment of a security described in § 220.4(j), shall be
70 per cent of its current market value.
(f) Security having no loan value in general ac­
count. No securities other than an exempted
security or registered non-equity security held in
the account on March 11, 1968, and continuously
thereafter, and a margin security, shall have any
loan value in a general account except that a mar­
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 March
11, 1968, and continuously thereafter.
(g) Requirements for inclusion on list of OTC
margin stock. Except as provided in subparagraph
(4) of § 220.2(e), OTC margin stock shall meet
the requirements that:

(e) Retention requirement. In the case of an ac­
count which would have an excess of the adjusted
debit balance of the account over the maximum
loan value of the securities in the account follow­
ing a withdrawal of cash or securities from the
account, pursuant to § 220.3(b) (2):

(1) The stock is subject to registration under
§ 12(g) (1) of the Securities Exchange Act of 1934
(15 U.S.C. 787(g) (1 )), or if issued by an insur­
ance company 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.

(1)
The “retention requirement” of an exempted
security held in the general account on March 11,
1968, and continuously thereafter, shall be equal
to its maximum loan value as determined by the
creditor in good faith, and the “retention require­
ment” of a registered non-equity security held in
such account on March 11, 1968, and continuously
thereafter, and of a margin security, shall be 70
per cent of the current market value of the security.

(2) Five or more dealers stand willing to, and
do in fact, make a market 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
mission from registration as a national securities
exchange pursuant to § 5 of the Act (15 U.S.C.
78e),

♦E ffective d ate o f addition o f P arag rap h ( h ) . T here have been
no changes in m axim um loan values o r retention requirem ent
since D ecem ber 6, 1971.

(over)

(3) There are 1,500 or more holders of record
of the stock who are not officers, directors, or
beneficial owners of 10 per cent or more of the
stock,

if issued by an insurance company such issuer con­
tinues to be subject to § 12(g) (2) (G) (15
U.S.C. 781(g) (2) (G )) and has at least $1 mil­
lion of capital and surplus.

(4) The issuer is organized under the laws of
the United States or a State6 and it, or a predeces­
sor in interest, has been in existence for at least
3 years,

(2) Four or more dealers stand willing to, and
do in fact, make a market in such stock including
making regularly published bona fide bids and of­
fers 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
mission from registration as a national securities
exchange pursuant to § 5 of the Securities Ex­
change Act of 1934 (15 U.S.C. 78e),

(5) The stock has been publicly traded for at
least 6 months, and
(6) Daily quotations for both bid and asked
prices for the stocks are continuously available to
the general public;
and shall meet 3 of the 4 additional requirements
that:
(7) There are 500,000 or more shares of such
stock outstanding in addition to shares held bene­
ficially by officers, directors, or beneficial owners
of more than 10 per cent of the stock,
(8) The shares described in subparagraph (7) of
this paragraph have a market value in the aggre­
gate of at least $10 million,
(9) The minimum average bid price of such
stock, as determined by the Board in the latest
month, is at least $10 per share, and
(10) The issuer had at least $5 million of capital,
surplus, and undivided profits.
(h )
Requirements for continued inclusion on
list of OTC margin stock.

(3) There continue to be 1,000 or more holders
of record of the stock who are not officers, direc­
tors, or beneficial owners of 10 per cent or more
of the stock,
(4) The issuer continues to be a U.S. corpo­
ration,
(5) 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 requirements that:
(6) 400,000 or more shares of such stock re­
main outstanding in addition to shares held bene­
ficially by officers, directors, or beneficial owners
of more than 10 per cent of the stock,
(7) The shares described in subparagraph (6)
of this paragraph continue to have a market value
in the aggregate of at least $5 million.

(8) The minimum average bid price of such
(1)
The stock continues to be subject to regis­
stock, as determined by the Board, is at least $5
tration under § 12(g) (1) of the Securities Ex­
per share, and
change Act of 1934 (15 U.S.C. 78/(g) (1 )), or
(9)
The issuer continues to have at least $2.5
million of capital, surplus, and undivided profits.
« A s defined in 15 U .S.C. 7 8 c ( a ) (1 6 ) .

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION U
Effective May 15,1972*
SECTION 221.4 — SUPPLEMENT
(a) Maximum loan value of stocks. For the
purpose of § 221.1, the maximum loan value of
any stock, whether or not registered on a national
securities exchange, shall be 45 per cent of its
current market value, as determined by any rea­
sonable method.
(b) Maximum loan value of convertible debt
securities subject to § 221.3(t). For the purpose
of § 221.3(t), the maximum loan value of any se­
curity against which credit is extended pursuant
to § 221.3(t) shall be 50 per cent of its current
market value, as determined by any reasonable
method.
(c) Retention requirement. For the purpose of
§ 221.1, in the case of a credit which would exceed
the maximum loan value of the collateral follow­
ing a withdrawal of collateral, the “retention re­
quirement” of a stock, whether or 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 current market value, as de­
termined by any reasonable method.
(d) Requirements for inclusion on list of OTC
margin stock. Except as provided in subparagraph
(4) of § 221.3(d), OTC margin stock shall meet
the requirements that:
(1) The stock is subject to registration under
§ 12(g) (1) of the Securities Exchange Act of
1934 (15 U.S.C. 78/(g) (1)), or if issued by an
insurance company 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 more dealers stand willing to, and
do in fact, make a market in such stock including
making regularly published bona fide bids and of­
fers 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
mission from registration as a national securities
exchange pursuant to § 5 of the Act (15 U.S.C.
78e),

(3) There are 1,500 or more holders of record
of the stock who are not officers, directors, or
beneficial owners of 10 per cent or more of the
stock,
(4) The issuer is organized under the laws of
the United States or a State9 and it, or a predeces­
sor 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) 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 requirements
that:
(7) There are 500,000 or more shares of such
stock outstanding in addition to shares held bene­
ficially by officers, directors, or beneficial owners
of more than 10 per cent of the stock,
(8) The shares described in subparagraph (7)
of this paragraph have a market value in the
aggregate of at least $10 million,
(9) The minimum average bid price of such
stock, as determined by the Board in the latest
month, 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) 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. 78/(g) (1)), or
if issued by an insurance company such issuer con­
tinues to be subject to § 12(g) (2) (G) (15
U.S.C. 781(g) (2) (G)) and has at least $1 mil­
lion of capital and surplus.
(2) Four or more dealers stand willing to, and
do in fact, make a market in such stock including
s As defined in 15 U.S.C. 78c(a) (16).

•Effective d a te of addition of P arag rap h ( e ) . T here have been
no changes in m axim um loan values o r retention requirem ent
since D ecem ber 6, 1971.

(O V E R )

making regularly published bona fide bids and of­
fers 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
mission from registration as a national securities
exchange pursuant to § 5 of the Securities Ex­
change Act of 1934 (15 U.S.C. 78e),
(3) There continue to be 1,000 or more holders
of record of the stock who are not officers, direc­
tors, or beneficial owners of 10 per cent or more
of the stock,

the general public; and shall meet 3 of the 4 addi­
tional requirements that:
(6) 400,000 or more shares of such stock re­
main outstanding in addition to shares held bene­
ficially by officers, directors, or beneficial owners
of more than 10 per cent of the stock,
(7) The shares described in subparagraph (6) of
this paragraph continue to have a market value
in the aggregate of at least $5 million,

(4) The issuer continues to be a U.S. corpora­
tion,

(8) The minimum average bid price of such
stock, as determined by the Board, is at least $5
per share, and

(5) Daily quotations for both bid and asked
prices for the stock are continuously available to

(9) The issuer continues to have at least $2.5
million of capital, surplus, and undivided profits.