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F ed er a l R eser ve Ba n k
DALLAS, TEXAS

of

Dallas

75222

Circular No. 7^-105
April 2k, 197^

PROPOSED AMENDMENTS TO REGULATIONS G, T, AND U
(Requirements for Inclusion and Continued
Inclusion on the List of OTC Margin Stocks)

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 proposes
to amend the criteria that over-the-counter (OTC) stocks must meet and
continue to meet to be included on its List of OTC Margin Stocks.
The criteria employed in selecting OTC stocks for inclusion
on the List of OTC Margin Stocks were announced on July 9? 1969*
More than 600 stocks are now on the list and subject to the Board’s
margin requirements.
The proposal, which would make the criteria somewhat less
restrictive, reflects the many changes that have occurred in the
OTC market since 1969? particularly the impact of the National
Association of Securities Dealers Automated Quotation System (NASDAQ,).
Interested persons are invited to submit relevant data,
views, or arguments in writing to the Secretary, Board of Governors
of the Federal Reserve System, Washington, D. C. 20551? to be
received not later than May 20, 197^ •
A copy of the proposal is attached.
Yours very truly,
P. E. Coldwell,
President
Attachment

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

FEDERAL RESERVE SYSTEM
[12 CFR I&RTS 207, 220, and 221]
[Regs. G, T, and U]
SECURITIES CREDIT TRANSACTIONS
Requirements for Inclusion and Continued
Inclusion on the List of OTC Margin Stocks

Pursuant to the authority of section 7 of the Securities
and Exchange Act of 1934 (15 U.S.C. § 78g (1970)) notice is hereby
given that the Board of Governors proposes to amend Parts 207, 220,
and 221 (the requirements for a stock's inclusion and continued
inclusion on the List of OTC Margin Stocks).

The purpose of the

proposed amendments is to incorporate in the requirements for in­
clusion and continued inclusion on the List of OTC Margin Stocks
significant changes which have occurred in the over-the-counter
(OTC) market, particularly the impact of the National Association
of Securities Dealers Automated Quotation System (NASDAQ).
PART 207 — SECURITIES CREDIT BY PERSONS OTHER
THAN BANKS, BROKERS, OR DEALERS
1.

Paragraphs (d) and (e) of section 207.5 would be

amended as set forth below:

S

207.5 Supplement

*
(d)
stock.

*

*

*

*

Requirements for inclusion on list of OTC margin

Except as provided in subparagraph (4) of $ 207.2(f), such

stock shall meet the requirements that:

2 (1)

The stock is subject to registration under section

12(g)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 781>
(g)(l)),
is issued by an insurance company subject to section 12(g)(2)(G)
(15 U.S.C. 781>
(g)(2)(G)) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment management
company subject to registration pursuant to section 8 of the Investment
Company Act of 1940 (15 U.S.C. $ 80a-8)f
(2)

Five or more dealers stand willing to, and do in

fact, make a market in such stock including making regularly pub­
lished 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 Coranission from registration as a
national securities exchange pursuant to section 5 of the Securities
Exchange Act of 1934 (15 U.S.C. 78e),
(3)

There are 1,200 or more holders of record (as defined

in SEC Rule 12g5-l) 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 State 9/ and it, or a predecessor in interest, has been
in existence for at least 3 years,
(5)

The stock has been publicly traded for at least 6

months,

9/

As defined in 15 U.S.C. 78c(a)(16).

3

(6)

Daily quotations for both bid and asked prices for

the stock are continuously available to the general public, and
(7)

There are 500,000 or more shares of such stock out­

standing in addition to shares held beneficially by officers,
directors, or beneficial owners of more than 10 per cent of the
stock; and shall meet two of the three additional requirements
that:
(8)

The shares described in subparagraph (7) of this

paragraph have a market value of at le«st $5 million,
(9)

The minimum average bid price of such stock, as de­

termined by the Board, is at least $10 per share, and
(10)

The issuer had at least $5 million of capital,

surplus, and undivided profits.
(e)
margin stock.

Requirements for continued inclusion on list of OTC
Except as provided in subparagraph (4) of $ 207.2(f),

such stock shall meet the requirements that:
(1)

The stock continues to be subject to registration

under section 12(g)(1) of the Securities Exchange Act of 1934 (15
U.S.C. 781_(g)(l)), is issued by an insurance company subject to
section 12(g)(2)(G) (15 U.S.C. 781.(g)(2)(G)) that has at least
$1 million of capital and surplus, or is issued by a closed-end
investment management company subject to registration pursuant to
section 8 of the Investment Company Act of 1940 (15 U.S.C. 9 80a-8),

4

(2)

Three or more dealers stand willing to, and do in

fact, make a market in such stock including making regularly pub­
lished 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 regis­
tration as 6 national securities exchange pursuant to section 5 of
the Securities Exchange Act of 1934 (15 U.S.C. 78e),
(3)

There continue to be 800 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 continues to be a U. S. Corporation,

(5)

Daily quotations for both bid and asked prices for

the stock are continuously available to the general public, and
(6)

There are 300,000 or more shares of such stock out­

standing in addition to shares held beneficially by officers,
directors, or beneficial owners of more than 10 per cent of the
stock; and shall meet two of the three additional requirements
that:
(7)

The shares described in subparagraph (6) of this

paragraph continue to have a market value of at least $2.5 million,
(8)

The minimum average bid price of such stock, as

determined by the Board, is at least $5 per share, and

- 5 (9)

Hie Issuer continues to have at least $2.5 million

of capital, surplus, and undivided profits.
PART 220 —
2.

CREDIT BY BROKERS AND DEALERS

Paragraphs (h) and (i)

of section 220.8 would be

amended as set forth below:
§ 220.8 Supplement

*
(h)
stock.
margin

*

*

*

*

Requirements for inclusion on list of OTC margin

Except as provided in subparagraph (4) of § 220.2(e), OTC
stock shall meet the requirements that:
(1)

The stock is

subject to registration under section

12(g)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 781^
(g)(1)), is issued by an insurance company subject to section 12(g)
(2)(6) (15 U.S.C. 781(g)(2)(G)) that has at least $1 million of
capital and surplus, or is issued by a closed-end investment manage­
ment company subject to registration pursuant to section 8 of the
Investment Company Act of 1940 (15 U.S.C. § 80a-8),
(2)

Five or more

fact, make a market in such

dealers stand willing to, and do

in

stock including making regularly pub­

lished 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 regis­
tration as a national securities exchange pursuant to section 5 of
the Securities Exchange Act of 1934 (15 U.S.C. 78e),

6 (3)

There are 1,200 or more holders of record (as defined

in SEC Rule 12g5-l) 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 State 6/ and it, or a predecessor in interest, has been
in existence for at least 3 years,
(5)

The stock has been publicly traded for at least 6

(6)

Daily quotations for both bid and asked prices for

months,

the stock are continuously available to the general public, and
(7)

There are 500,000 or more shares of such stock out­

standing in addition to shares held beneficially by officers,
directors, or beneficial owners of more than 10 per cent of the
stock; and shall meet two of the three additional requirements that:
(8)

The shares described in subparagraph (7) of this

paragraph have a market value of at least $5 million,
(9)

The minimum average bid price of such stock, as

determined by the Board, is at least $10 per share, and
(10)

The issuer had at least $5 million of capital,

surplus, and undivided profits.
(i)
margin stock.

Requirements for continued inclusion on list of OTC
Except as provided in subparagraph (4) of S 220.2(e),

OTC margin stock shall meet the requirements that:

6/

As defined in 15 U.S.C. 78c(a)(16).

7
(1)

The stock continues to be subject to registration

under section 12(g)(1) of the Securities Exchange Act of 1934 (15
U.S.C. 781^g)(l)), is issued by an insurance company subject to
section 12(g)(2)(G) (15 U.S.C. 781(g)(2)(G)) that has at least
$1 million of capital and surplus, or is issued by a closed-end
investment management company subject to registration pursuant to
section 8 of the Investment Company Act of 1940 (15 U.S.C. § 80a-8),
(2)

Three or more dealers stand willing to, and do in

fact, make a market in such stock including making regularly pub­
lished 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 regis­
tration as a national securities exchange pursuant to section 5 of
the Securities Exchange Act of 1934 (15 U.S.C. 78e),
(3)

There continue to be 800 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 continues to be a U. S. Corporation,

(5)

Daily quotations for both bid and asked prices for

the stock are continuously available to the general public, and
(6)

There are 300,000 or more shares of such stock out­

standing in addition to shares held beneficially by officers,
directors, or beneficial owners of more than 10 per cent of the
stock; and shall meet two of the three additional requirements that

- 8 (7)

The shares described in subparagraph (6) of this

paragraph continue
(8)

The

to have a market value of at least $2.5

million,

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.
PART 221 — CREDIT BY BANKS FOR THE PURPOSE
OF PURCHASING OR CARRYING MARGIN STOCKS
3.

Paragraphs (d) and (e) of section 221.4 would be

amended as set forth below:
§ 221.4 Supplement

*
(d)
stock.

*

*

*

*

Requirements for inclusion on list of OTC margin

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 section

12(g)(1) of the Securities Exchange Act of 1934 (15 U.S.C.
(1)), is issued by an insurance company subject

to section

781_ (g)
12(g)(2)

(G) (15 U.S.C. 781L
(g)(2)(G)) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment management
company subject to registration pursuant to section
Investment Company Act of 1940 (15 U.S.C. § 80a-8) ,

8 of the

- 9 -

(2)

Five or more dealers stand willing to, and do in

fact,make a market in such

stock including making regularly pub­

lished 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 regis­
tration as a national securities exchange pursuant to section 5 of
the Securities
(3)

Exchange Act

of 1934 (15 U.S.C. 78e),

There are 1,200 or more holders of record (as

defined

in SEC Rule 12g5-l) 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 State 9/ and it, or a predecessor in interest, has been
in existence for at least 3 years,
(5)

The stock has been publicly traded for at least 6

(6)

Daily quotations for both bid and asked prices for

months,

the stock are continuously available to the general public, and
(7)

There are 500,000 or more shares of such stock out­

standing in addition to shares held beneficially by officers,
directors, or beneficial owners of more than 10 per cent of the
stock; and shall meet two of the three additional requirements
that:

9/

As defined in 15 U.S.C. 78c(a&(16).

-

(8)

10 -

The shares described in subparagraph (7) of this

paragraph have a market value of at least $5 million,
(9)

The minimum average bid price of such stock, as

determined by the Board, is at least $10 per share, and
(10)

The issuer had at least $5 million of capital,

surplus, and undivided profits.
(e)
margin stock.

Requirements for continued inclusion on list of OTC
Except as provided in subparagraph (4) of

f

221.3(d),

OTC margin stock shall meet the requirements that;
(1)

The stock continues to be subject to registration

under section 12(g)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 781^ (g)(1)), is issued by an insurance company m & j e e t
to section 12(g)(2)(G) (15 U.S.C. 781^(g)(2)(G)) that has at least
$1 million of capital and surplus, or is issued by a closed-end
investment management company subject to registration pursuant to
section 8 of the Investment Company Act of 1940 (15 U.S.C. $ 80a-8),
(2)

Three 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

- 11 Is exempted by the Securities and Exchange Commission from registra
tion as a national securities exchange pursuant to section 5 of the
Securities Exchange Act of 1934 (15 U.S.C. 78e),
(3)

There continue to be 800 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 continues to be a U.S.

Corporation,

(5)

Daily quotations for both bid and asked prices

for

the stock are continuously available to the general public, and
(6)

There are 300,000 or more shares of such stock out­

standing in addition

to shares held beneficially by officers,

directors, or beneficial owners of more than 10 per cent of the
stock; and shall meet two of the three additional requirements that
(7)

The shares described in subparagraph (6) of this

paragraph continue to have a market value of at least $2.5 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.

-

12

-

Interested persons are invited to submit relevant data,
views, or arguments concerning this proposal.

'

Any such material

should be submitted in writing to the Secretary, Board of Governors
of the Federal Reserve System, Washington, D.C.
received not later than May 20, 1974.

20551, to be

Such material will be made

available for inspection and copying upon request, except as
provided in § 261.6(a) of the Board's Rules Regarding Availability
of Information.
This notice is published pursuant to section 553(b) of
Title 5, United States Code, and § 262.2(a) of the Rules of procedure
of the Board of Governors of the Federal Reserve System (12 C.F.R.
262.2(a)).
By order of the Board of Governors, April 15, 1974.

(Signed) Chester B. Feldberg
Chester B. Feldberg
Secretary of the Board
[SEAL]

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