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FED E R A L R ESER V E BANK OF NEW YORK r Circular No. 7 3 1 4 L January 2, 1974 1 J MARGIN REQUIREMENTS REDUCED Effective January 3, 1974 To A ll Persons E xtending Securities Credit in the Second Federal Reserve D istrict: The following statement was issued today by the Board of Governors of the Federal Reserve System: The B oa rd o f G overnors o f the F ed era l R eserve System tod a y low ered its m argin req u ire ments fo r pu rchasin g or ca rry in g stocks fro m 65 p er cent to 50 p er cent, effective T h u rsday, Ja n u a ry 3, 1974. The a ction w ill cover new extensions o f cred it fo r the purpose o f pu rch asin g or ca rry in g stocks that are registered on a national stock exchange or in clu d ed in the B o a r d ’s over-the-coun ter m argin list. Its effect w ill be to requ ire persons b u y in g such stocks on cred it to pu t u p a m inim um o f 50 p er cent o f the purchase p rice— instead o f 65 p er cent— at the tim e o f the transaction. C redit m ay be obtained fo r the rem aining 50 p e r cent. In an nou n cin g the change, the B oa rd noted the sharp red u ction that has occu rred in stock market credit since m argin requirem ents were increased fro m 55 to 65 per cent effective N ovem ber 24, 1972. M argin cred it extended b y brokers and dealers declined last N ovem ber fo r the eleventh consecutive month. The level o f m argin debt at broker-dealers on N ovem ber 30 was about $5.5 billion, or 31 p er cent below the peak o f $7.9 b illion in D ecem ber 1972. T o d a y ’s action was taken u nder the a u th ority granted to the B oa rd in the S ecurities E xch an ge A c t o f 1934 to preven t the excessive use o f cred it to finance securities transactions. In line with the new m argin requirem ent, the required deposit on short sales was also low ered from 65 to 50 per cent, also effective J a n u a ry 3. No change was m ade in the 50 per cent m argin requirem ent fo r p u rchasin g or ca rry in g con vertible bonds, or in the 70 p er cent “ retention req u irem en t” that applies to u n d er-m argin ed accounts. This latter requirem ent relates to that p ortion o f the proceeds o f a sale o f securities that must be retained in an accou nt if the a c co u n t’s equ ity does not meet the in itial m argin requirem ent— 50 per cent b egin n in g tom orrow . T o d a y ’s action applies specifically to new extensions o f cred it by brokers and dealers (R e g u lation T ) and loans b y banks and other lenders (R eg u la tion s U and G re sp e ctiv e ly ) fo r the purpose o f pu rchasin g o r ca rry in g m argin stocks. Copies of the Supplements, effective January 3, 1974, to Regulations G, T, and U, reflecting the reduction in margin requirements, will be sent to you shortly. Additional copies of this circular will be furnished upon request. A lfred H ayes , President.
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