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FEDERAL RESERVE BANK OF NEW YORK [ Circular No. 10313 October 24, 1989 "I \ PROPOSED AMENDMENTS TO REGULATION T Comment Invited by November 30 on Marginability of Foreign Securities To All Banks, Brokers and Dealers, and Others Extending Securities Credit in the Second Federal Reserve District: Following is the text of a statement issued by the Board of Governors of the Federal Reserve System: T h e F e d e r a l R e s e r v e B o a r d h a s i s s u e d fo r p u b lic c o m m e n t p r o p o s e d a m e n d m e n ts t o R e g u la t io n T (C r e d it b y B r o k e rs a n d D e a le r s ) to a c c o m m o d a t e th e s e ttle m e n t a n d c le a r a n c e o f t r a n s a c tio n s in f o r e ig n s e c u r it i e s a n d to p e r m it m a r g in a b ilit y at b r o k e r -d e a le r s fo r fo r e ig n s e c u r it ie s . C o m m e n t s m u s t b e s u b m itte d to th e B o a r d b y N o v e m b e r 3 0 , 1 9 8 9 . T h e p r o p o s e d a m e n d m e n ts are th e r e s u lt o f a r e q u e s t fr o m th e S e c u r it ie s I n d u str y A s s o c ia t i o n ( S I A ) to r e c o g n i z e th e fa c t th a t s e c u r it ie s m a r k e ts h a v e b e c o m e g lo b a l. T h e a m e n d m e n t s w o u ld : • p e r m it f o r e ig n “ w o r l d - c la s s ” e q u ity a n d d e b t s e c u r it ie s to b e e li g i b l e fo r m a r g in at b r o k e r -d e a le r s o n th e s a m e b a s is a s m a r g in s e c u r it ie s ; • p e r m it r e c o g n it io n a n d is o la t io n o f d e b t d e n o m in a t e d in fo r e ig n c u r r e n c ie s a n d a llo w th e f o r e ig n w o r ld - c la s s s e c u r it ie s d e n o m in a t e d in th a t c u r r e n c y to b e u s e d a s m a r g in fo r th e d e b t w it h o u t c o n v e r s io n in to d o lla r s ; • e a s e r e s tr ic t io n s o n p a y m e n t a n d s e ttle m e n t fo r fo r e ig n s e c u r it ie s to a c c o m m o d a t e th e p r a c t ic e s o f th e m a r k e t w h e r e th e tr a d e o c c u r s ; a n d • a llo w a b r o k e r -d e a le r s u b je c t to R e g u la tio n T to a r r a n g e c r e d it o n n o n - U n it e d S ta te s s e c u r it ie s . F o r e ig n e q u it y s e c u r it ie s w o u ld be e li g ib le fo r m a r g in tr e a tm e n t upon c e r t if ic a t io n th a t th e y m eet th e f o llo w in g c r ite r ia : • lis t in g o n a n e x c h a n g e o u t s id e th e U n ite d S ta te s; • c o n t in u o u s a v a ila b ilit y fr o m that e x c h a n g e to U .S . c r e d ito r s o f q u o ta tio n s o f b o th b id a n d a s k e d o r la s t s a le p r ic e s th r o u g h a n e le c t r o n ic q u o ta tio n s y s te m ; • a n a g g r e g a te m a r k e t v a lu e fo r th e s e c u r it y o f at le a s t $1 b illio n ; • a tr a d e a b le flo a t o f at le a s t 1 m illio n sh a re s; • a n a v e r a g e w e e k l y tr a d in g v o lu m e o f e ith e r at le a s t 2 0 0 , 0 0 0 sh a r e s o r th e e q u iv a le n t o f $1 m illio n ; a n d • th e e x is t e n c e o f th e i s s u e r o r a p r e d e c e s s o r in in te r e s t fo r at le a s t f i v e y e a rs. T h e p r o p o s a l w o u ld a ls o m a k e fo r e ig n c o r p o r a te d e b t s e c u r it ie s m a r g in a b le i f th e o r ig in a l i s s u e h a d o u ts ta n d in g a p r in c ip a l a m o u n t o f $ 1 0 0 m i ll i o n , th e i s s u e is n o t in d e fa u lt o n in te r e s t o r p r in c ip a l p a y m e n ts , a n d th e i s s u e is ra ted in o n e o f th e tw o h ig h e s t r a tin g c a t e g o r ie s b y a n a tio n a lly r e c o g n i z e d s ta tis tic a l r a tin g s e r v ic e . C o m m e n t is a ls o s o u g h t a s to w h e t h e r a d d itio n a l o r a lte r n a tiv e c r ite r ia s h o u ld b e a d o p te d to d e t e r m in e th e e li g i b i li t y o f s p e c i f ic i s s u e s o f f o r e ig n e q u it y a n d d e b t s e c u r it ie s . Printed on the following pages is the text of the Board’s proposal, as published in the Federal Register of October 10. Comments thereon should be submitted by November 30 and sent to the Board, as indicated in the notice, or to our Compliance Examinations Department. E. G erald C o r r ig a n , President. 41454 Proposed Rules Federal Register Vol. 54, No. 194 Tuesday, October 10, 1989 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. or S cott H olz, A tto rn ey , D iv isio n of Banking S u p erv isio n a n d R egulation, (202) 452-2781. For th e h ea rin g im p a ired only, T eleco m m u n ic atio n s S erv ice for the Deaf, E arn e stin e H ill o r D o ro th ea T hom pson, (202) 452-3544. SUPPLEMENTARY INFORMATION: FEDERAL R E SE R V E SYSTEM I. M arginability o f C ertain F oreign S ecurities 12 CFR Part 220 [Regulation T; Docket No. R-0675) RIN: 7100-AA72 Credit by Brokers and Dealers; Accommodation of Settlement and Clearance of Foreign Securities AGENCY: B o a rd o f G o v ern o rs o f th e F e d e ra l R e serv e S y stem . a c t i o n : P ro p o se d rude. s u m m a r y : T h e B o a rd is p ro p o sin g for p u b lic co m m en t a m e n d m e n ts to R e g u la tio n T to a c c o m m o d a te th e in c re a sin g in te rn a tio n a liz a tio n o f th e s e c u ritie s m a rk e ts. T h e a m en d m e n ts, su g g e sted b y th e S e c u ritie s In d u stry A sso c ia tio n (SLA), w o u ld : (1) P erm it foreign “w o rld -c la s s ” e q u ity a n d d e b t se c u ritie s to b e elig ib le for m arg in a t b ro k e r-d e a le rs on th e sa m e b a s is a s m arg in se cu ritie s: (2) p erm it reco g n itio n a n d iso la tio n o f d e b t d e n o m in a te d in foreign c u rre n c ie s a n d allo w th e foreign w o rld -c la s s se c u ritie s d e n o m in a te d in th a t cu rre n c y to b e u se d a s m arg in for th e d e b t w ith o u t co n v e rsio n in to dollars: (3) e a s e re stric tio n s o n p a y m e n t a n d se ttle m e n t for foreign se c u ritie s to a c c o m m o d a te th e p ra c tic e s o f th e m a rk e t w h e re th e tra d e occurs; a n d (4) a llo w a b ro k e r-d e a le r su b je c t to R eg u latio n T to a rra n g e c re d it on nonU n ite d S ta te s se c u ritie s. d a t e : C o m m en ts sh o u ld b e re c e iv e d on o r b efo re N o v em b e r 30,1989, ADDRESS: C o m m en ts, w h ic h sh o u ld refer to D o ck et R-0675, m a y b e m a ile d to Mr. W jlliam W . W iles, S e c re ta ry , B o a rd of G o v ern o rs o f th e F e d e ra l R e serv e S ystem , 20th S tre e t & C o n stitu tio n A v en u e, N W ., W a sh in g to n , DC 20551, or d e liv e re d a t th e C S tre e t E n tran c e b e tw e e n 8:45 a.m . a n d 5:15 p.m. w e e k d a y s to R oom B-2223. C o m m ents m ay b e in sp e c te d in R oom B-1122 b e tw e e n 8:45 a.m . a n d 5:15 p.m. w e e k d a y s. FOR FURTHER INFORMATION CONTACT: L au ra H om er, S e c u ritie s C red it O fficer, A t p re se n t m an y foreign eq u ity secu rities a re m a rg in ab le d irectly , through trad in g on n a tio n a l se c u ritie s ex ch an g es o r on N A SD A Q , o r in d ire ctly , through th e u se of A m eric an D e p o sita ry R eceipts (ADRs). A ll o f th e se foreign secu rities are p rice d in d o lla rs for trad in g p u rp o ses. T h is p ro p o sa l co n tem p late s ad d in g a lim ited n u m b e r of foreign eq u ity se c u ritie s a s eligible for m argin cred it. A n y se cu rity to b e p la c e d on a list to b e p u b lish e d b y th e B o ard m ust be ce rtified by a U.S. selfregulatory o rg an iz atio n (SRO), su c h as th e N ew Y ork S to ck E x ch ag e (NYSE), w hich h a s a d o p te d p ro c e d u re s for determ ining eligibility th a t h a v e b e e n ap p ro v e d b y th e B oard. T h e NYSE h a s ag reed to c o n sid e r th e a d o p tio n o f su ch pro ced u res. T h e se c u ritie s w o u ld b e d esig n ated “w o rld -c la ss" se c u ritie s. In general, th e eligibility re q u ire m e n ts, a s p ro p o sed by th e SLA a n d m o d ified b y the Board, in clu d e listing on a se c u ritie s exch an g e o u tsid e the U n ite d S ta te s for a t le a st six m onths; c o n tin u o u s av a ila b ility from th a t ex c h an g e to U.S. cred ito rs of q u o ta tio n s of b o th b id a n d a sk e d or la st sa le p rice s th rough an electro n ic q u o ta tio n system ; a n aggregate m a rk e t v alu e for th e s h a re s of $1 billion; a tra d e a b le flo at of 1 m illion shares; an av e rag e w ee k ly trad in g volum e of e ith e r 200,000 sh a re s o r th e eq u iv alen t o f $1,000,000; a n d th e ex iste n ce of th e issu e r or a p re d e c e s so r in in te rest for a t le a s t five y e a rs. L ow er sta n d a rd s for m a rk e t v alu e a n d trad in g volum e criteria w o u ld b e p e rm itte d for rete n tio n on th e list. C om m ent is req u e sted on a d d itio n a l o r a lte rn a te criteria for d eterm in in g th e eligibility of both foreign se c u ritie s ex c h an g e s an d specific issu es of se cu ritie s. T he p ro p o sal w o u ld a lso m ak e foreign co rp o rate d e b t se c u ritie s m a rg in ab le if the original issu e h a d o u tsta n d in g a principal am o u n t of a t le a s t $100,000,000, the issue is n o t in d e fa u lt on in te re st o r principal p ay m en ts, a n d th e issu e is ra te d in one o f th e tw o h ig h e st ra tin g categ o ries b y a n a tio n a lly rec o g n ize d s ta tis tic a l ra tin g service. T he p ro p o sal a lso p ro v id e s for the m arginability of foreign d e b t u n ra te d at the effective d a te of the p ro p o se d rule if a su b se q u e n t u n se c u re d d e b t issue of a t least $100,000,000 of the sam e issuer receiv es th e re q u ire d high rating. The SEC p re se n tly rec o g n izes five statistica l ra tin g o rg an iz atio n s: Duff and Phelps; F itch In v e sto r Services; M oody’s In v e sto r S ervices; M cC arthy, C risa n ti & M affei; a n d S ta n d a rd & Poor’s. C om m ent is re q u e ste d on a lte rn a te criteria for m a rg in a b ility of foreign corp o rate d eb t se cu ritie s. II. U se o f F oreign C urrency T h e p re se n t reg ulation requires, in re le v a n t p art, th a t all d eb its a n d cre d its b e e x p re sse d in d o llars. Loan v alu e o f se c u ritie s d en o m in ated in other cu rre n c ie s m u st b e tran slate d into d o lla rs w h e n th e y a re used to co n trib u te lo a n v a lu e in a m argin account. If p a y m e n t for a m argin call is rec eiv e d in foreign cu rren cy , it m ust be co n v e rted in to d o lla rs b efo re d ep o sit into the m arg in a c co u n t. U nder the proposal, “d o lla rs o n ly ” accounting w ould no lo n g er b e re q u ire d an d foreign cu rren cy co u ld b e d e p o site d a n d m ain tain ed in a m arg in ac co u n t. By the use of a su b a c c o u n t o r o th e r m ethods of re c o rd k eep in g in th e m argin account, the p ro p o sa l w o u ld p erm it se p arate c o m p u ta tio n s for all deb its d en o m in ated in a sp ecific foreign currency a n d s e e m e d b y se p a ra te ly identified foreign w o rld -c la ss se cu rities d en o m in ated in th a t cu rren cy . U n d er the current p rac tice o f d en o m in atin g all tran sa ctio n s in d o lla rs, a n in c re a se in the value of an y c o lla te ra l c a n b e ap p lied to any o th e r se c u ritie s tra n sa c tio n s in the m argin a c co u n t. By in su latin g tran sa ctio n s d e n o m in a te d in foreign currencies, the p ro p o sa l c o n tem p late s th a t no eq u ity for R eg u la tio n T p u rp o ses could b e rea lize d from this foreign currency or foreignc u rre n c y -d e n o m in a ted security ag a in st d o lla r d efic ien c ie s or deficiencies in o th e r foreign cu rren cies. H ow ever, the p ro p o sa l sh o u ld n o t p rev en t the c o m b in a tio n o f th e foreign and d o lla r c u rre n c y p o sitio n s for m a in te n an c e ru les o f th e SRO s. In ad d itio n , the seg reg atio n o f all tra n sa c tio n s in foreign m arg in ab le se c u ritie s a n d a tte n d a n t d eb t w o u ld be o p tio n a l. T h e cu rren t p ractice of d e n o m in a tin g all tran sa ctio n s a n d d e b t in d o lla rs in th e m argin account w o u ld still b e av a ila b le . T he SIA p ro p o sal also Federal Register / Vol. 54, No. 194 / Tuesday, October 10, 1989 / Proposed Rules p ro v id e s th a t foreign cu rren c y h eld in a b a n k a c c o u n t u n d e r th e c re d ito r’s co n tro l co u ld o ffse t a d eb it o r re q u ire m e n t d e n o m in a te d in su c h foreign cu rren c y . W h ile th e B oard b e lie v e s th e re sh o u ld b e n o b a rrie r to this p ro ce d u re , th e specific p ro v isio n p ro p o se d b y th e S IA to clarify th a t foreign cu rre n c y s o h e ld c a n b e given v a lu e to re d u c e a foreign cu rren c y d e b it o r re q u ire m e n t is n o t b e in g p ro p o s e d a s th e B o a rd b e lie v e s it is im p licit in th e reg u lato ry lan g u ag e th a t is b e in g p ro p o sed . III. S ettlem e n t T h ere is a w id e v a rie ty o f se ttle m e n t tim es a n d p ro c e d u re s th ro u g h o u t th e fin a n c ia l m a rk e ts o f th e w o rld . In d ie U n ited S ta te s th e u su a l tim e for settling tra d e s in eq u ity se c u ritie s u n d e r ex c h an g e ru le s is five b u sin e ss days. H ow ever, th e re a re o th e r s e ttle m e n t p e rio d s p ro v id e d for tra d e s in g o v ern m e n t se c u ritie s a n d fu tu res p ro d u cts. In th e U n ite d K ingdom th e re is fortn ig h tly s e ttle m e n t In F ra n c e a b a tc h s e ttle m e n t s y s te m is u se d , w ith a ll tra d e s o n o r a fte r th e b eg in n in g d a te o f the m o n th ’s s e ttle m e n t p erio d d u e n o la te r th a n th e b eg in n in g d a te o f the n e x t m o n th ’s p u b lis h e d se ttle m e n t d ate. T ra n s a c tio n s o n th e B ru ssels S tock E x ch an g e in B elgium a re se ttle d in a m a n n e r s im ila r to th e p ro c e d u re in F ran ce. M o st J a p a n e s e tra n s a c tio n s se ttle on th e th ird b u sin e ss d a y a fte r ex ecu tio n . A n ex istin g p ro v isio n in R e g u latio n T for cash, tr a n s a c tio n s p e rm its up to 35 d a y s for se ttle m e n t in a d eliv ery ag a in st p a y m e n t (DVP) s y ste m if th e e x tra tim e is req u ire d b e c a u s e o f the m e c h a n ic s of the tra d e a n d is n o t re la te d to th e p u rc h a s e r’s w illin g n e ss or ab ility to pay. T his p ro p o sa l c o n te m p la te s c a s h se ttle m e n t o f all fo re ig n se c u ritie s tra n s a c tio n s in a foreign m a rk e t on the e a rlie r o f th e d a te re q u ire d b y ru le s of a c o m p e te n t a u th o rity o v e r th a t m a rk e t or 35 d a y s from tra d e d a te (w h ich is d ie o u tsid e tim e fo r se ttle m e n t in D V P tra n sa c tio n s). It is e x p e c te d th a t th is p ro p o sal w ill ac c o m m o d a te th e sh o rten in g o f se ttle m e n t p e rio d s fo r c a sh tra n s a c tio n s (a s h a s b e e n su g g e sed b y m o st c o m m e n te rs in light o f th e im plicit risk s in the w id e ly v ary in g sy ste m s n o w in p la c e in th e w o rld ) w ith o u t fu rth e r a m e n d m e n t to th e rule. IV . A rran g in g T h e “a rra n g in g '1 se ctio n o f R eg u latio n T, w ith s e v e ra l e x c e p tio n s, p ro h ib its a b ro k e r-d e a le r fro m a rra n g in g cre d it u n le ss it is c re d it th a t th e b ro k e r-d e a le r c a n its e lf e x te n d . S in c e m o st foreign s e c u ritie s a r e n o t “m a rg in se c u ritie s’* on w h ic h a b ro k er-d e ale r ca n e x te n d or m a in ta in cred it. U.S. b ro k ers a n d their o v e rs e a s b ra n c h e s a re p re v e n te d from a s sistin g U.S. an d foreign c u sto m e rs in o b ta in in g an y cred it for th e ir p u rch a se. B e ca u se the securities are non-U.S. se c u ritie s a b o rro w er is n o t re g u la te d u n d e r R eg u latio n X as to th e a m o u n t o f c re d it h e o r she can o b ta in from foreign b ro k e r-d e a le rs o r foreign b a n k s. In ad d itio n , U.S. b a n k s are free to le n d a “good faith " am ount on th e se n o n m argin se cu ritie s an d can also a rra n g e th e c re d it. U nited S ta te s b ro k e rs a re th u s com petitively d isa d v a n ta g e d in serv in g cu stom ers w ho m ight w ish to b o rro w . T h e p ro p o sal w o u ld p erm it b ro k e r-d e a le rs to a rran g e c re d it fo r a n y c u sto m e r w ith a foreign le n d e r to p u rc h a se non-U-S. secu rities. W h ile th e SIA p ro p o se d placing on U.S. b ro k erd e a le rs th e b u rd en of asc e rta in in g the leg ality of the cred it b eing e x te n d e d a b ro a d , the B oard believes th is is a re sp o n sib ility th a t the foreign le n d e r w ill m e e t R eg u la to ry Flexibility A ct T h e B o ard b eliev es th ere w ill b e n o sig n ific an t econom ic im p a ct o n a s u b s ta n tia l num ber o f sm a ll e n titie s if th is p ro p o sa l is ad o p ted . C o m m ents a re in v ite d o n this s ta te m e n t P a p e rw o rk R edaction A ct N o ad d itio n a l rep o rting re q u ire m e n ts o r m o d ificatio n to ex istin g rep o rtin g re q u ire m e n ts a re proposed. List o f S u b je c ts in 12 CFR P a rt 220 B anks, Banking, Rrokers, O e d it, F e d e ra l R eserve System , M argin, M argin req u irem en ts, In v estm en ts, R eporting a n d reco rd k eep in g requirem ents, S ecu rities. F or th e re a so n s se t out in this notice, a n d p u rsu a n t to the B oard’s a u th o rity u n d e r se ctio n s 3, 7, 8,17, a n d 23 o f the S ecu rities E xchange A ct of 1934, as a m e n d e d [15 U.S.C. 78c, 78g, 78h, 78q, a n d 78wJ, the B oard p ro p o ses to am e n d 12 CFR p a rt 220 a s follows: PART 220— CREDIT BY BR O K E R S AND DEALERS 1. T h e au th o rity citatio n for p a r t 220 c o n tin u e s to re a d a» follow s: Authority 15 U.S.C. 78c, 78g, 78h, 78q, and 78w. 2. In § 220.2, “or'* is rem o v ed a t th e en d o f p a ra g ra p h (o)(4); the p e rio d is rem o v e d a t th e e n d o f p a ra g ra p h (o)(5) and or” is added; a n d n e w p a ra g ra p h s (o)(6), (r)(5), a n d (2) a re a d d e d to re a d a s follow s: § 220.2 DatMtfona. * * * * * * (0) “M arg in se c u rity ” m eans: * * * * * (6) * * (r) "O T C m argin b o n d " m eans: * * * * 41455 A n y w o rld -c lass security. * * * (5) A foreign d e b t secu rity th a t m e ets all of th e follow ing req u irem en ts: (1) A t th e tim e o f original issue, a p rin c ip a l am o u n t of a t le a s t $100,000,000 w a s o u tsta n d in g ; (ii) A t th e tim e o f th e ex ten sio n of cre d it, th e c re d ito r h a s a re a so n a b le b a s is for b eliev in g th a t the issu e r is n o t in d e fa u lt o n in te re st o r p rin cip al p a y m e n ts ; a n d (iii) A t th e tim e o f th e ex ten sio n of cred it, th e issu e is ra te d in o n e o f th e tw o h ig h e st ra tin g ca teg o ries by a n a tio n a lly reco g n ized s ta tis tic a l ratin g o rg a n iz a tio n , e x c e p t th a t a n issu e th a t h a s n o t b e e n ra te d as of the effective d a te o f th is p ro v isio n sh all be c o n s id e re d a n “O TC m argin b o n d ” if a su b se q u e n t u n se c u re d issu e of a t le a s t $100,000,OCX) of the sa m e issu e r is ra te d in one o f th e tw o h ig h est ratin g ca te g o rie s b y a n a tio n ally reco g n ized s ta tis tic a l ra tin g org anization. * * * * * (z) “W o rld -c la ss se cu rity ” m ean s: (1) A n eq u ity se cu rity th a t is n e ith e r a re g iste re d se c u rity n o r a n O TC m argin sto c k a n d th a t a p p e a rs o n th e B o a rd ’s p e rio d ic a lly p u b lish e d L ist o f M a rg in a b le F o re ig n S tocks, b a s e d o n a c e rtific a tio n b y a self-regulatory o rg a n iz a tio n u n d e r p ro ce d u re s a p p ro v e d b y th e B o a rd ; or (2) A d e b t se cu rity co n v e rtib le into a n eq u ity s e c u rity th a t a p p e a rs o n the B o a rd ’s L ist of M a rg in ab le F oreign S tocks. 3. In § 220.4, a n ew s e n te n c e is a d d e d to th e e n d of p a ra g ra p h (c)(1) to re a d a s follow s: § 220.4 * * M argin account. * * * (c) When additional margin is required— (1) Computing deficiency. * * * To the e x te n t th a t d e b its in p m a rg in a c c o u n t a re d e n o m in a te d in fo reig n cu rren cy s e c u re d by sp e c ific a lly id e n tified foreign m a rg in se c u ritie s a s p ro v id e d in se ctio n 220.5(g), e a c h fo re ig n cu rren c y d e b it p o sitio n sh a ll b e c o n s id e re d se p a ra te ly for p u rp o s e s o f co m p u tin g a deficien cy a n d no c re d it sh a ll b e given to s u c h sp e c ific a lly id e n tifie d foreign m a rg in s e c u ritie s for p u rp o se s of com puting eq u ity in th e m argin acco u n t e ith e r in U n ite d S ta te s d o lla rs o r in an y o th e r sp e cific foreign cu rren cy . * * * * * Federal Register / Vol. 54, No. 194 / Tuesday, October 10, 1989 / Proposed Rules 41456 4. In § 220.5, a n e w p a ra g ra p h (g) is a d d e d to re a d a s follow s: § 220.5 Margin account exceptions and special provisions. * * * * * Credit denominated in foreign currency. A c re d ito r m a y e x te n d cre d it (g) d e n o m in a te d in a foreign c u rre n c y s e c u re d b y foreign m a rg in s se c u ritie s d e n o m in a te d or tra d e d in th e sa m e foreign cu rre n c y a n d sp e cific ally id e n tifie d on th e c re d ito r’s b o o k s a n d re c o rd s a s se cu rin g th e foreign c u rren c y deb it. 5. In § 220.8, p a ra g ra p h (b)(1) in tro d u c to ry te x t is rev ised : p a ra g ra p h s (b)(1) (i) th ro u g h (iv) a re re d e sig n a te d a s sh o w n below : § 220.13 Arranging for loans by others. * * * * * (d) C red it e x te n d e d b y a foreign p e rso n to p u rc h a s e n o n -U n ited S ta te s se c u ritie s. 7. In § 220.17, th e se c tio n h e a d in g a n d th e h e a d in g s to p a ra g ra p h s (a) a n d (b) a re rev ise d : th e re fe re n c e to p a ra g ra p h (d) in p a ra g ra p h s (a) a n d (b) is ch a n g ed to re a d p a ra g ra p h (f); p a ra g ra p h s (c), (d), a n d (e) are red e sig n ated a s p a ra g ra p h s (e) , (f), a n d (g) an d revised: a n d n ew p a ra g ra p h s (c) a n d (d) are a d d e d to re a d a s follow s: §220.17 Requirements for lists of marginable OTC and foreign stocks. (a) Requirements for inclusion on the list of marginable OTC stocks. * Old paragraph designation New paragraph designation (i) (>i) (iii) (iv) (A) (B) (C) (A) (B) (C) (D) d ) {2) (5) a n d n e w p a ra g ra p h s (b)(l)(i) a n d (b)(l)(ii) a re a d d e d to re a d a s follow s: § 220.8 * * Cash account * * * (b) Time periods for payment; cancellation or liquidation— (1) Full cash payment. A c re d ito r sh a ll o b ta in full c a sh p a y m e n t for cu sto m e r puch ases— (i) W ith in se v e n b u sin e ss d a y s of th e d ate: * * * * * (ii) In the c a se of p u rc h a se of a foreign security, on th e e a rlie r of: (A) T h e d a te on w h ich se ttle m e n t is re q u ire d to o cc u r by th e ru les o f th e foreign se c u ritie s e x c h a n g e o r th e d a te b y w h ich lo c al b ro k e rs a n d d e a le rs in the foreign m a rk e t a re re q u ire d to s e ttle tra d e s: or (B) T h e m ax im u m tim e p e rm itte d by th is p a rt fo r d e liv e ry a g a in st p a y m e n t tra n sa c tio n s. * * * * * 6. In § 220.13, “o r” is rem o v e d a t the en d o f p a ra g ra p h s (a) a n d (b); th e p erio d is rem o v e d a t th e e n d of p a ra g ra p h (c) and o r" is a d d e d : a n d n e w p a ra g ra p h (d) is a d d e d to re a d a s follow s: * * * * (b) Requirements for continued inclusion on the list of marginable OTC stocks. * * * * * p a ra g ra p h (f) of this section, a m a rg in ab le foreign stock sh a ll m e e t the follow ing requirem ents: (1) T he secu rity co n tinues to m eet the req u irem en ts specified in p a ra g ra p h s (c) (1) a n d (2) of this section; (2) T he aggregate m arket v alu e of sh a re s, th e o w n ersh ip of w h ich is u n re stric te d , is n o t less th a n $500 m illion; a n d (3) T he av e rag e w eekly trad in g volum e of such secu rity during the p rec ed in g six m o n th s is e ith e r a t le a s t 100,000 sh a re s or $500,000. (e) Removal from the lists. T h e B oard sh a ll p erio d ically rem ove from th e lists an y sto c k that: (1) C e a se s to e x ist or o f w h ich th e iss u e r c e a s e s to ex ist, or (2) N o lo n g er su b sta n tia lly m e e ts the p ro v isio n s o f p a ra g ra p h s (b) o r (d) of th is se c tio n o r § 220.2(s). (f) Discretionary authority of Board. W ith o u t re g a rd to o th e r p a ra g ra p h s of th is se ctio n , th e B o ard m ay a d d to, o r om it o r rem o v e from the lists of m a rg in ab le O TC a n d foreign sto c k s an y eq u ity secu rity , if in the jud g m en t of the B oard, su c h a c tio n is n e c e s s a ry o r a p p ro p ria te in th e p u b lic in te re st. (g) Unlawful representations. It sh all b e u n la w fu l for a n y c re d ito r to m ak e, or c a u se to b e m ade, an y re p re s e n ta tio n to th e effect th a t the in c lu sio n o f a secu rity on the lists of m a rg in ab le O TC o r foreign sto c k s is e v id e n c e th a t th e B oard or the SEC h a s in a n y w a y p a s s e d u pon th e m e rits of, or g iven ap p ro v a l to, such se cu rity o r a n y tra n sa c tio n s therein . A ny sta te m e n t in a n a d v e rtise m e n t or o th e r sim ila r co m m u n icatio n co n tain in g a re fe re n c e to the B o ard in co n n e ctio n w ith th e lists or sto c k s on th o se lists sh a ll b e a n u n law fu l re p re se n ta tio n . 8. In § 220.18, th e p h ra se “o r th e p e rc e n ta g e se t b y th e reg u la to ry a u th o rity w h e re th e tra d e occurs, w h ic h e v e r is g re a te r” is a d d e d b efo re the p e rio d a t the e n d of p a ra g ra p h s (a) a n d (b). (c) Requirements for inclusion on the list of marginable foreign stocks. E x cep t as p ro v id ed in p ara g ra p h (f) of th is sectio n , a m arg in ab le foreign sto c k sh a ll m e et the follow ing req u irem en ts: (1) T he secu rity is listed for trad in g on a foreign secu rities ex change a n d h a s b e e n trad in g on such ex ch an g e for a t le a s t six m onths: (2) D aily q u o ta tio n s for b o th b id a n d a s k e d or la st sale p rices for th e se cu rity p ro v id ed by the foreign ex c h an g e on w h ich the secu rity is tra d e d a re co n tin u o u sly a v a ila b le to c re d ito rs in th e U n ited S tate s p u rsu a n t to a n elec tro n ic q u o ta tio n system : (3) T he aggregate m ark et v a lu e of sh a re s, th e o w n ersh ip of w h ic h is unrestricted, is n o t less th a n $1 billion; (4) T h ere are 1,000,000 or m o re sh a re s of su ch secu rity o u tstan d in g in a d d itio n to sh a re s h eld beneficially b y officers, d ire c to rs o r ben eficial o w n ers o f m ore th a n 10 p e rc e n t of the sh a re s o u tstan d in g ; (5) T he av e rag e w eekly trad in g volum e of such secu rity during th e p rec ed in g six m o n th s is e ith e r a t le a s t 200,000 sh a re s or $1 million; a n d (6) T he issu er or a p re d e c e sso r in in te re st h a s b e e n in e x iste n ce for at le a st five years. (d) Requirements for continued Secretary of the Board. inclusion on the list of marginable foreign stocks. E xcept as p ro v id e d in BILLING CODE 6210-01-M By order of the Board of Governors of the Federal Reserve System, September 29.1989. William W. Wiles, [FR Doc. 89-23773 Filed 10-6-89; 8:45 am]