Full text of Federal Reserve Bank of New York Circulars : 6853. Margin Requirements Lowered

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FEDERAL RESERVE BANK
OF NEW YORK

rCircular No. 6 8 5 3 1
L December 3, 1971 -I

M AR G IN RE Q U IRE M 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 margin requirement
for purchasing or carrying stocks from 65 to 55 per cent, effective Monday, December 6.
In making the change, the Board cited the moderate level of outstanding stock market credit
and the absence of indications of the excessive use of such credit. Margin credit extended by
brokers totaled about $5 billion at the end of October compared with the peak of about $6.5
billion reached during June 1968. At large banks, loans for the purpose of purchasing or carrying
securities currently amount to about $2.5 billion.
Today’s action will cover new extensions of credit by brokers and dealers (Regulation T )
and loans by banks and other lenders (Regulations U and G, respectively) for the purpose of
purchasing or carrying stocks registered on a national stock exchange or named in the Board’s
over-the-counter margin list.
No change was made in the 50 per cent margin requirements for purchasing or carrying
convertible bonds or in the 70 per cent “retention requirement” applicable to undermargined
accounts. This latter requirement specifies the portion of the proceeds of a sale of securities from
a margin account that must be retained in the account if its equity does not match the new margin
requirement.
In line with the new margin requirement, the required deposit on short sales was also lowered
from 65 to 55 per cent, also effective Monday.
Federal Reserve margin requirements set the minimum down payment that must be made to
purchase margin securities. Under a 55 per cent margin requirement, a purchaser is required to
pay 55 per cent of the purchase price and may obtain credit for the remaining 45 per cent.

Enclosed are copies of Supplements, effective December 6, 1971, 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 lfr ed H

ayes,

President.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION G
Effective December 6,1971
SECTION 207.5 — SUPPLEMENT
(a) Maximum loan value of margin securi­
ties. For the purpose of § 207.1, the maximum

loan value of any margin security, except con­
vertible 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 ex­
tended pursuant to § 207.1(d) shall be 50 per
cent of its current market value, as deter­
mined by any reasonable method.
(c ) Retention requirement. For the pur­
pose of § 207.1, in the case of a loan which
would exceed the maximum loan value of the
collateral following a withdrawal of collateral,
the “retention requirement” of a margin se­
curity and of a security against which credit
is extended pursuant to § 207.1(d) shall be
70 per cent of its current market 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 requirements 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 7 ( g ) ( 1 ) ) , or if is­
sued by an insurance company subject to
§ 1 2 ( 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 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 more holders of
record of the stock who are not officers, di­
rectors, 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
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 meet 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 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
capital, surplus, and undivided profits.
9 As defined in 15 U.S.C. 7 8 c (a ) ( 1 6 ).

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BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION T
Effective December 6, 1971

SECTION 220.8 — SUPPLEMENT
(a) Maximum loan value for general ac­
counts. 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 con­
tinuously 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 market 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 determined by the creditor in good
faith.
(b) Maximum loan value for a special bond
account. The maximum loan value of an ex­

empted security and of a registered non-equity
security pursuant to § 220.4(i) shall be the
maximum loan value of the security as deter­
mined by the creditor in good faith.
(c ) Maximum loan value for special con­
vertible debt security account. The maximum
loan value of a margin security eligible for a
special convertible security account pursuant
to § 220.4(j) shall be 50 per cent o f the cur­
rent 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 margin required for short
sales of securities ( other than exempted secur­
ities) shall be 55 per cent of the current
market value of each security.




(e)
Retention requirement. In the case of
an account 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, pursuant to
§ 220.3(b)(2):
(1) The “retention requirement” of an ex­
empted security held in the general account
on March 11, 1968, and continuously there­
after, shall be equal to its maximum loan value
as determined by the creditor in good faith,
and the “retention requirement” 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) In the case of a special bond account
subject to § 220.4(i), the retention require­
ment of an exempted 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) 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 requirement of a secur­
ity 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 convert­
ible security account subject to § 220.4( j), the
retention requirement of a security described
in § 220.4(j), shall be 70 per cent of its current
market value.

(

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o v e r

)

(f) Security having no loan value in gen­
eral account. No securities other than an ex­
empted security or registered non-equity se­
curity held in the account on March 11, 1968,
and continuously thereafter, and a margin se­
curity, shall have any loan value in a general
account except that a margin 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
OTC margin stock.
subparagraph (4) of
stock shall meet the

for inclusion on list of
Except as provided in
§ 220.2(e), OTC margin
requirements that:

(1) The stock is subject to registration
under § 12(g)(1) of the Securities Exchange
Act of 1934 (15 U.S.C. 7 8 Z ( g ) ( l ) ) , or if
issued by an insurance company subject to
§ 12( 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 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 sto^k 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 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
more of the stock,
(4) The issuer is organized under the laws
of the United 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 meet 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 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
capital, surplus, and undivided profits.
6 As 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 December 6,1971

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 reasonable 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 security against which credit is
extended pursuant to §221.3(t) shall be 50
per cent of its current market value, as deter­
mined by any reasonable method.
( c ) Retention requirement. For the pur­
pose of § 221.1, in the case of a credit which
would exceed the maximum loan value of the
collateral following a withdrawal of collat­
eral, the “retention requirement” of a stock,
whether 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 market value, as deter­
mined 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 2( g ) ( 1 ) ) , or if
issued by an insurance company subject to
§ 1 2 ( g ) ( 2 ) ( G ) (15 U.S.C. 7 8 1 (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 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
more of the stock,
(4) The issuer is organized under the laws
of the United 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 meet 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 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
capital, surplus, and undivided profits.
9 As defined in 15 U.S.C. 7 8 c (a ) ( 1 6 ) .

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