Full text of Federal Reserve Bank of New York Circulars : 7150. Margin Regulations

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F ederal Reserve Bank
of New York
f Circular No. 7 1 5 0 T
L May 24, 1973
J

M AR G IN REG ULATIONS
Amendments to Regulations G, T , and U ; Proposed Amendment to Regulation T
To A ll Persons E xtending Securities Credit
in the Second Federal R eserve D is tr ic t:

Following is the text o f a statement issued May 15 by the Board o f Governors o f the Federal
Reserve System:
The Board of Governors of the Federal Reserve System today issued the attached amendment to its
margin regulations designed to prevent the excessive use of credit in connection with the sale of puts and
calls, which are options to sell or buy stocks.
The amendments will:
— Deny loan value to all puts and calls, including those registered on a national securities exchange.
— Include puts and calls within the definition of equity security, effective June 16, for purposes
of Regulation U (securities credit by banks) to make it clear that bank loans on puts and calls are
subject to the regulation. This prohibits banks from making a loan collateralized by put and call
contracts for the purpose of purchasing or carrying margin stocks.
— State that any margin required in connection with the writing, endorsement or guarantee of a
put and call must not be used in a margin account to purchase other securities.
The Board issued for comment through June 1 a proposed amendment to Regulation T (securities
credit by brokers and dealers) to ensure that margin requirements in connection with the issuance, endorse­
ment or guarantee of a put or call will be uniform. At the outset, this requirement would be based on the
minimum requirements of the major stock exchanges for puts and calls. Generally, the New York Stock
Exchange requires a 25 per cent margin for a put and 30 per cent for a call.

Enclosed are copies of documents reflecting the changes in the B oard ’s margin regulations. In
addition, printed below is the text of the proposed amendment to Regulation T. Comments thereon
should be submitted by June 1 and may be sent to our Regulations and Bank Analysis Department.
A lfr ed H ayes ,

President.
[Reg. T ]
PAR T 220 — CREDIT B Y BROKERS AND DEALERS
Notice of Proposal to Set Uniform Margin in Connection W ith
Writing of Puts, Calls and Combinations thereof
Pursuant to authority of Section 7 of the Securities
and Exchange Act of 1934 (15 U.S.C. 78g), notice
is hereby given that the Board o f Governors proposes
amending section 22 0.3 (d )(5 ) of Regulation T,
“ Credit by Brokers and Dealers” to require a uniform
margin in connection with the issuance, endorsement
or guarantee of any put, call or combination thereof.
Such uniform margin requirement would be based, at
the outset, upon the minimum margin requirements
of the major stock exchanges for puts, calls and
combinations thereof.

Interested persons are invited to subm it relevant
data, views, or argum ents 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. 20551, to be
received not later than June 1, 1973. 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
of Title 5, United States Code, and
Rules of Procedure of the Board of
Federal Reserve System (12 CFR

to section 553(b)
§ 262.2(a) of the
Governors of the
262.2(a)).

By order of the Board of Governors, May 10, 1973.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

AMENDMENTS TO REGULATIONS T AND U
AMENDMENTS TO REGULATION T
C R E D IT BY BROKERS A N D D E ALER S

Effective May 23, 1973, sections 220.3(b)(2)
and ( d )(5 ) are amended as follows:

*
*
* (5 ) the amount of any margin re­
quired in connection with the issuance, en­
dorsement or guarantee of any put, call or
combination thereof.
o

o

o

SECTION 220.3 GENERAL ACCOUNT
#

0

*

*

AMENDMENT TO REGULATION U

0

C R E D IT BY BANKS F O R T H E
PURPOSE O F PU RCH ASING OR
CARR YIN G M A R G IN STOCKS

( b ) General rule
o

o

o

o

o

(2)
Except as permitted in this subpara­
graph, no withdrawal of cash or exempted or
margin securities shall be permissible if the
adjusted debit balance of the account
(whether the general account, the special
bond account, or the special convertible se­
curity account) would exceed the maximum
loan value of the securities in such account
after such withdrawal. The exceptions are
available only in the event no cash or securi­
ties need to be deposited in such account in
connection with a transaction on a previous
day and none would need to be deposited
thereafter in connection with any withdrawal
of cash or securities on the current day. The
permissible exceptions are * * * (iv) upon
the sale (other than the short sale) of margin
securities or securities having loan value in
the general account, special bond account, or
special convertible security account there may
be withdrawn in cash an amount equal to the
difference between the current market value
of the securities sold and the “retention re­
quirement” of such securities, or (v ) <M> *
o

o

o

o

o

(d )
Adjusted debit balance. For the pur­
pose of this part, the adjusted debit balance
of a general account, special bond account, or
special convertible debt security account shall
be calculated by taking the sum of the follow­
ing items:




Effective June 16, 1973, section 221.3(1) is
amended to read as follows:
SECTION 221.3 MISCELLANEOUS
PROVISIONS
tf

o

o

o

o

(1 )
Stock. The term stock includes any
security commonly known as a stock; any
voting trust certificate or other instrument
representing such a security; and any security
convertible, with or without consideration,
presently or in the future, into such security,
certificate, or other instrument, or carrying
any warrant or right to subscribe to or pur­
chase such a security; or any such warrant or
right; or any other security which the Securi­
ties and Exchange Commission shall deem to
be of similar nature and consider necessary or
appropriate, by such rules and regulations as
it may prescribe in the public interest or for
the protection of investors, to treat as an
equity security such as any certificate of in­
terest or participation in any profit sharing
agreement, preorganization certificate or sub­
scription, transferable share, limited partner­
ship interest, interest in a joint venture, or
certificate of interest in a business trust; or
any put, call, straddle, or other option or
privilege of buying such a security from or
selling such a security to another without
being bound to do so.

P R IN T E D IN N E W YORK

X.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENTS TO REGULATIONS G, T, AND U
SUPPLEMENT TO REGULATION G
Effective May 23,1973
SECTION 207.5 — SUPPLEMENT
(a) Maximum loan value o f 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) and
any put, call or combination thereof, shall be
35 per cent of its current market value, as
determined by any reasonable method. No
put, call or combination thereof shall have
any loan value for the purposes of this part.
(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 o f the
collateral following a withdrawal o f collateral,
the “retention requirement” o f 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 Z ( g ) ( l) ) , or if is­
sued by an insurance company 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 more dealers stand willing to,
and do in fact, make a market in such stock




including making regularly published bona
fide bids and oflFers 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 deBned in 15 U .S.C. 7 8 c ( a ) ( 1 6 ) .

P R IN T E D IN N E W YO RK

(e)

(4) The issuer continues to be a U.S. cor­
poration,

Requirements for continued inclusion

on list of O T C margin stock. Except as pro­

vided in subparagraph (4 ) of § 207.2(f), such
stock shall meet the requirements that:

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

(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.
7 8 /(g ) ( 1 ) ) , or if issued by an insurance com­
pany such issuer continues to be subject to
section 1 2 ( g ) ( 2 ) ( G ) (15 U.S.C. 7 8Z (g)(2)
( G ) ) and has at least $1 million of capital
and surplus,

and shall meet 3 of the 4 additional require­
ments that:
( 6 ) 400,000 or more shares of such stock
remain outstanding in addition to shares held
beneficially 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,

(2 ) Four or more dealers stand willing to,
and do in fact, make a market in such stock
including making regularly published b om
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),

( 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.

(3 ) There continue to be 1,000 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,

(f)
Minimum equity ratio. The minimum
equity ratio of a credit subject to § 207.1 is 40
per cent.

SU PPLEM EN T T O R E G U L A T IO N T
Effective M ay 23,1 9 7 3

SECTION 220.8 — SUPPLEMENT
(a)

Maximum loan value for general ac­

security as determined by the creditor in good
faith.

counts. The maximum loan value of securities

(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.

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 ), (c ) and (f) of this section),
35 per cent of the current market value of
such securities.

(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 of the cur­
rent market value of the security.

(2 ) of an exempted security held in the
account on March 11, 1968, and continuously
thereafter, the maximum loan value of the




2

(d) Margin required for short sales. The
amount to be included in the adjusted debit
balance of a general account, pursuant to
§ 2 20.3(d )(3), as margin required for short
sales of securities ( other than exempted secur­
ities) shall be 65 per cent of the current
market value of each security.

exempted security or registered non-equity
security held in the account on March 11,
1968, and continuously thereafter, and a mar­
gin security, shall have any loan value in a
general account except that a margin security
eligible for the special convertible debt securi­
ty account pursuant to § 220.4 (]) shall have
loan value only if held in the account on
March 11, 1968, and continuously thereafter;
and no put, call or combination thereof shall
have loan value in a general account.

(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):

(g) Account subject to section 8(g). For
purposes of the computation described in
§ 220.3(b) ( l ) ( i i ) ,

(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.

(1) The maximum loan value of a regis­
tered non-equity security held in the account
on March 11, 1968, and continuously there­
after, and of a margin equity security shall
be 60 per cent of the current market value of
such security, and the maximum loan value of
an exempted security held in the account on
March 11, 1968, and continuously thereafter
shall be the maximum loan value of the secu­
rity as determined by the creditor in good
faith.

(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.

.

(2) The amount to be included in the ad­
justed debit balance of the account pursuant
to § 220.3(d)(3) as margin required for short
sales of securities (other than exempted secu­
rities) shall be 40 per cent of the current
market value of each 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.

(h) 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;

(4) For the purpose o f 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.

(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 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,

(f) Securities having no loan value in a
general account. No securities other than an

(2 ) Five or more dealers stand willing to,
and do in fact, make a market in such stock




3

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),

(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.
78Z(g) ( 1 ) ) , or if issued by an insurance com­
pany such issuer continues to be subject to
section 1 2 ( g ) ( 2 ) ( G ) (15 U.S.C. 78Z(g)(2)
(G ) )and has at least $1 million of capital and
surplus,

(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,

(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 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),

(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

(3) There continue to be 1,000 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,

( 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:

(4 ) The issuer continues to be a U.S. cor­
poration,

(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,

(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 require­
ments that:

( 8 ) The shares described in subparagraph
(7 ) of this paragraph have a market value in
the aggregate of at least $10 million,

(6 ) 400,000 or more shares of such stock
remain outstanding in addition to shares held
beneficially by officers, directors, or beneficial
owners of more than 10 per cent of the stock,

(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

(7 ) The shares described in subparagraph
( 6 ) of this paragraph continue to have a mar­
ket value in the aggregate of at least $5
million,

(10) The issuer had at least $5 million of
capital, surplus, and undivided profits.

(i)
Requirements for continued inclusion
(8 ) The minimum average bid price of
on list of OTC margin stock. Except as pro­
such stock, as determined by the Board, is at
vided in subparagraph (4 ) of § 220.2(e),
least $5 per share, and
OTC margin stock shall meet the requirements
that:
(9 ) The issuer continues to have at least
$2.5 million of capital, surplus, and undivided
6 As defined in 15 U.S.C. 7 8 c ( a ) ( 1 6 ) .
profits.




4

SUPPLEM ENT T O R E G U L A T IO N U
Effective June 16,1973

pursuant to section 5 of the Act (15 U.S.C.
78e),

(a) Maximum loan value of stocks. For
the purpose of § 221.1, the maximum loan
value of any stock except puts, calls and com­
binations thereof, whether or not registered
on a national securities exchange shall be 35
per cent of its current market value, as de­
termined by any reasonable method. Puts,
calls and combinations thereof shall have no
loan value.

(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,

(b ) Maximum loan value of convertible
debt securities subject to § 221.3 (t). For the

(5) The stock has been publicly traded for
at least 6 months, and

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.

(6 ) Daily quotations for both bid and
asked prices for the stock are continuously
available to the general public;

( 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 o f its current market value, as deter­
mined by any reasonable method.

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,

(d) Requirements for inclusion on list of

(8 ) The shares described in subparagraph
(7) of this paragraph have a market value in
the aggregate of at least $10 million,

O TC margin stock. Except as provided in
subparagraph (4) of § 221.3(d), OTC margin
stock shall meet the requirements that:

(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

(1) The stock is subject to registration
under § 12( g ) ( 1 ) of the Securities Exchange
Act of 1934 (15 U.S.C. 7 8 2 (g )(1 )), or if
issued by an insurance company 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,

(10) The issuer had at least $5 million of
capital, surplus, and undivided profits.
(e )
Requirements for continued inclusion
on list of OTC margin stock. Except as pro­
vided in subparagraph (4 ) of § 221.3(d),
OTC margin stock shall meet the require­
ments that:
(1) The stock continues to be subject to reg­
istration under section 12 ( g ) (1 ) of the Securi­
ties Exchange Act of 1934 (15 U.S.C. 782(g)
(1)), or if issued by an insurance company such
issuer continues to be subject to section 12(g)
( 2 ) (G ) (15 U.S.C. 7 8 2 (g ) (2 )(G )) and has
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




9 As defined in 15 U .S.C. 7 8 c ( a ) ( 1 6 ) .

5

(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 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),

and shall meet 3 of the 4 additional require­
ments that:
(6 ) 400,000 or more shares of such stock
remain outstanding in addition to shares held
beneficially 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 mar­
ket value in the aggregate of at least $5
million,

(3 ) There continue to be 1,000 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,

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

(4) The issuer continues to be a U.S. cor­
poration,

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

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

(f)
Minimum equity ratio. The minimum
equity ratio of a credit subject to § 221.1 is 40
per cent.




6

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