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FE D E R A L R E S E R V E BANK O F NEW YO R K r" Circular No. 6 5 3 7 ~l L May 5, 1970 J M ARGIN R EQ U IR EM EN TS L O W E R E D To All Persons Extending Securities Credit in the Second Federal Reserve District: The Board of Governors of the Federal Reserve System issued the following statement today: The Board of Governors of the Federal Reserve System today lowered its m argin requirem ent for purchasing or carrying stocks from 80 to 65 per cent, effective W ednesday (M ay 6). At the same time, the Board lowered the m argin requirem ent for purchasing or carrying convertible bonds—those th at can be converted into stock—from 60 to 50 per cent, also effective W ednesday (M ay 6). In making the changes, the Board cited the sharp reduction in the use of credit for stock purchases. In the Securities Exchange Act of 1934, Congress granted the Board of Governors authority to impose m argin requirem ents “for the purpose of preventing the excessive use of credit for the purchase or carrying of securities.” Since the last change in m argin requirem ents, in June 1968, w hen they w ere increased from 70 to 80 per cent for stocks and 50 to 60 per cent for convertible bonds, m argin credit extended by brokers has dropped from $6.7 billion to $4.5 billion in M arch 1970, and the num ber of m argin accounts has dropped from 940,000 to 820,000. M eanwhile, credit extended by banks for p u r chasing or carrying securities has declined from a high of $2.8 billion in February 1969, to $2.4 billion in M arch 1970. The action, am ending the Board’s regulations relating to stock m arket credit, will cover new extension of credit by brokers and dealers ( R egulation T ), and loans by banks and other lenders ( Regulations U and G, respectively) for the purpose of purchasing or carrying securities registered on a national stock exchange or nam ed in the Board’s over-the-counter m argin list. No change was m ade in the 70 per cent “retention requirem ent” applicable to underm argined accounts. T hat requirem ent specifies the portion of the proceeds of a sale of securities from a m argin account that m ust be retained in the account if the equity in th at account does not m atch the new m argin requirem ents. Federal Reserve m argin requirem ents set the m inimum dow npaym ent th a t m ust b e m ade to purchase a stock or a convertible bond on credit. U nder a 65 per cent m argin requirem ent, a purchaser of stock is required to put up 65 per cent of the purchase price in cash (or collateral w ith that m uch “loan value” under the regulations) at the tim e of the transaction. H e m ay then obtain credit for the remaining 35 per cent of the purchase price. Enclosed are copies of Supplements, effective May 6, 1970, to Regulations G, T and U, giving effect to the lower margin requirements (for persons who may be subject to Regula tion G, only the Supplement to that regulation is enclosed). Additional copies of the enclosures will be furnished upon request. A lfred H a yes, President. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION G Effective May 6,1970 SECTIO N 207.5 — SU PPLEM EN T (a) Maximum loan value of m argin securi ties. For the purpose of § 207.1, the maximum loan value of any m argin security, except con vertible securities subject to § 207.1(d), shall be 35 per cent of its current m arket value, as determ ined by any reasonable m ethod. (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 w hich credit is ex tended pursuant to § 207.1(d) shall be 50 per cent of its current m arket value, as d eter m ined by any reasonable m ethod. (c) R etention requirem ent. F or the pur pose of § 207.1, in the case of a loan which would exceed the maximum loan value of the collateral following a w ithdraw al of collateral, the “retention requirem ent” of a m argin se curity and of a security against w hich credit is extended pursuant to § 207.1(d) shall be 70 per cent of its current m arket value, as determ ined by any reasonable m ethod. (d) Requirem ents for inclusion on list of OTC m argin stock. Except as provided in subparagraph (4) of § 207.2(f), such stock shall m eet the requirem ents that: (1) The stock is subject to registration under § 1 2 (g )(1 ) of the Securities Exchange Act of 1934 (15 U.S.C. 7 8 Z (g ) (l)), or if is sued by an insurance com pany subject to 5 1 2 (g ) (2 )(G ) (15 U.S.C. 7 8 / ( 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, m ake a m arket in such stock including m aking 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 securities exchange pursuant to section 5 of the Securities and Exchange Act of 1934 (15 U.S.C. 78e), (3) There are 1,500 or m ore holders of record of the stock who are not officers, di rectors, or beneficial owners of 10 p er cent or more of the stock, (4) The issuer is organized under the laws of the U nited States or a State9 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, and (6) Daily 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 additional require ments that: (7) There are 500,000 or more shares of such stock outstanding in addition to shares held beneficially by officers, directors, or bene ficial owners of m ore than 10 per cent of the stock, (8) The shares described in subparagraph (7) of this paragraph have a m arket value in the aggregate of at least $10 million, (9) The minimum average bid price of such stock, as determ ined 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. 9 As defined in 15 U.S.C. 7 8 c(a) (1 6 ). P R I N T E D IN N E W Y O R K BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION T Effective M ay 6,1970 SEC T IO N 220.8 — SU PPLEM EN T (a) M aximum loan value for general ac counts. T he 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 M arch 11, 1968, and con tinuously thereafter, and of a m argin equity security (except as provided in § 220.3(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 maximum loan value of the security as determ ined by the creditor in good faith. (b ) Maximum loan value for a special bond account. T he maximum loan value of an ex em pted security and of a registered non-equity security pursuant to § 220.4 (i) shall be the maximum loan value of the security as deter m ined by the creditor in good faith. (c) Maximum loan value for special con vertible d eb t security account. The maximum loan value of a m argin security eligible for a special convertible security account pursuant to § 220.4 ( j ) shall be 50 per cent of the cur rent m arket value of the security. (d ) M argin required for short sales. The am ount to be included in the adjusted debit balance of a general account, pursuant to § 2 2 0 .3 (d )(3 ), as m argin required for short sales of securities ( other than exem pted secur ities) shall be 65 per cent of the current m arket value of each security. (e) R etention requirem ent. In the case of an account w hich 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 w ithdraw al of cash or securities from the account, pursuant to § 220.3(b)(2): (1) The “retention requirem ent” of an ex em pted security held in the general account on M arch 11, 1968, and continuously there after, shall be equal to its maximum loan value as determ ined by the creditor in good faith, and the “retention requirem ent” of a registered non-equity security held in such account on M arch 11, 1968, and continuously thereafter, and of a m argin security, shall be 70 per cent of the current m arket value of the security. (2) In the case of a special bond account subject to § 220.4(i), the retention require m ent of an exem pted security and of a regis tered non-equity 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) w hich 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 w ithdraw al of cash or securities from the account, the retention requirem ent of a secur ity having loan value in the account shall be 70 per cent of the current m arket value of the security. (4) For the purpose of effecting a transfer from a general account to a special convert ible security account subject to § 220.4(j), the retention requirem ent of a security described in § 220.4(j), shall be 70 per cent of its current m arket value. ( over) (f) Security having no loan value in gen eral account. No securities other than an ex em pted security or registered non-equity se curity held in the account on M arch 11, 1968, and continuously thereafter, and a m argin se curity, shall have any loan value in a general account except th at a m argin security eligible for the special convertible security account pursuant to § 220.4 ( j ) shall have loan value only if held in th e account on M arch 11, 1968, and continuously thereafter. (g) R equirem ents for inclusion on list of OTC m argin stock. Except as provided in subparagraph (4) of § 220.2(e), OTC m argin stock shall m eet the requirem ents that: (1) The stock is subject to registration u nder § 1 2 (g )(1 ) of the Securities Exchange Act of 1934 (15 U.S.C. 7 8 Z (g ) (l)), or if issued by an insurance com pany subject to § 1 2 ( g ) ( 2 ) ( G ) (15 U.S.C. 7 8 2 (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 m arket in such stock including m aking regularly published bona fide bids and offers for such stock for their own accounts, or the stock is registered on a securities exchange th at is exempted by the Securities and Exchange Commission from registration as a national securities exchange pursuant to section 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, direc tors, or beneficial owners of 10 per cent or m ore of the stock, (4) T he issuer is organized under the laws of the U nited States or a State6 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, and (6 ) Daily quotations for both bid and asked prices for the stocks are continuously available to the general public; and shall m eet 3 of the 4 additional require m ents that: (7 ) T here are 500,000 or more shares of such stock outstanding in addition to shares held beneficially by officers, directors, or bene ficial owners of more than 10 per cent of the stock, (8 ) The 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 month, is at least $10 per share, and (10) The issuer had at least $5 million of capital, surplus, and undivided profits. 6 As defined in 15 U.S.C. 78c(a)(16). P R IN T E D IN N E W YO RK BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION U Effective May 6, 1970 SECTION 221.4 — SU PPLEM EN T (a) Maximum loan value of stocks. For the purpose of § 221.1, the m aximum 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 reasonable m ethod. (b ) M aximum loan value of convertible d ebt securities subject to § 221.3(t). F or the purpose of § 221.3(t), the m aximum loan value of any security against w hich credit is extended pursuant to § 221.3 (t) shall be 50 p er cent of its current m arket value, as deter m ined by any reasonable m ethod. (c ) R etention requirem ent. For the p u r pose of § 221.1, in the case of a credit which w ould exceed the maximum loan value of the collateral following a w ithdraw al of collat eral, the “retention requirem ent” of a stock, w hether or not registered on a national secu rities exchange, and of a convertible debt security subject to § 221.3(t), shall be 70 per cent of its current m arket value, as d eter m ined by any reasonable method. (d) Requirem ents O TC m argin stock. subparagraph (4) of stock shall m eet the for inclusion on list of Except as provided in § 221.3(d), OTC m argin requirem ents that: (1) The stock is subject to registration under § 1 2 (g )(1 ) of the Securities Exchange Act of 1934 (15 U.S.C. 7 8 Z (g ) (l)), or if issued by an insurance com pany subject to § 1 2 (g ) (2 )(G ) (15 U.S.C. 7 8 Z (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, make a m arket 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 th a t is exem pted by the Securities and Exchange Commission from registration as a national securities exchange pursuant to section 5 of the Act (15 U.S.C. 78e), (3) T here are 1,500 or m ore holders of record of the stock who are not officers, direc tors, or beneficial owners of 10 p er cent or m ore of the stock, (4) The issuer is organized under the laws of the U nited States or a State9 and it, or a predecessor in interest, has been in existence for at least 3 years, (5) The stock has been publicly trad ed for at least 6 m onths, and (6) Daily quotations for both b id and asked prices for the stock are continuously available to the general public; and shall m eet 3 of the 4 additional require ments that: (7) There are 500,000 or m ore shares of such stock outstanding in addition to shares held beneficially by officers, directors, or bene ficial owners of m ore than 10 per cent of the stock, (8) The shares described in subparagraph (7) of this paragraph have a m arket value in the aggregate of at least $10 million, (9) The m inimum average bid price of such stock, as determ ined by the Board in the latest m onth, is a t least $10 per share, and (10) The issuer had at least $5 million of capital, surplus, and undivided profits. 9 As defined in 15 U.S.C. 7 8 c ( a ) ( 1 6 ) . P R IN T E D IN N E W YO RK
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