Full text of Federal Reserve Bank of New York Circulars : 7847. Changes in the Criteria for Listing OTC Margin Stocks

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL R ESERVE BANK
O F N E W YORK
r C ir c u la r N o . 7 8 4 7 * 1

L

M arch 2 5, 1976

J

CHANGES IN THE CRITERIA FOR LISTING OTC MARGIN STOCKS
Proposed Amendments to Regulations G, T, and U
w

Diitn'rt.'

Following is the text of a statement issued March 11 by the Board of Governors of the
Federal Reserve System:
The Board of Governors of the Federal Reserve System proposed today to amend some of the criteria
that over-the-counter (O TC ) stocks must meet and continue to meet to be included on its List of OTC
Margin Stocks.
More than 800 stocks are now on the list and subject to the Board's margin regulations.
The proposal reflects changes that have occurred in the OTC market in recent years, particularly the
increased competition among the securities markets and the impact of the National Association of Securi­
ties Dealers Automated Quotation System (N A SD A Q ).
Comment will be received by the Board through April 23, 1976.

The text of the proposed amendments to Regulations G, T, and U is printed below. Com­
ments thereon should be submitted by April 23, and may be sent to the Securities Regulations
Division of our Bank Regulations Department.
PAUL A. VoLCKER,
[Regs. G, T, and U]
[12 CFR Parts 207,220, and 221]
(Docket No. R-0025)

SECURITIES CREDIT TRANSACTIONS
Requirements for Inclusion
and Continued Inclusion on the List of OTC Margin Stocks
Pursuant to the authority of sections 7 and 23 of the
Securities Exchange Act of 1934 (15 U.S.C. § 78g and
w), notice is hereby given that the Board of Governors
proposes to amend the sections of Parts 207, 220, and
221 which contain the requirements for a stock's inclu­
sion and continued inclusion on the List of OTC Margin
Stocks. The purpose of the proposed amendments is to
revise the criteria for inclusion and continued inclusion
on the List of OTC Margin Stocks in view of signifi­
cant changes which have occurred in the over-thecounter (O TC ) market, particularly the increased com­
petition among the securities markets and the impact
of the National Association of Securities Dealers Auto­
mated Quotation System (N A SD A Q ).
The changes in initial listing requirements that would
be made by the proposed amendments are as follows:
(1)
The number of required market-makers would
be reduced from 5 to 4; (2) the requirement for 1200 or
more holders of record need not be met for stocks with
an average daily trading volume of at least 500 shares;
and (3) the required average stock price would be
reduced from $10.00 per share to $5.00 per share.
The criteria for continued listing would be changed
as follows: (1) An alternative to the requirement for
800 or more holders of record would be an average
daily volume of 300 shares; and (2) the required aver­
age stock price of $5.00 per share would be reduced
to $3.00 per share.




The amended sections of Regulations G, T, and U
(12 C.F.R. Parts 207, 220 and 221) would read as
follows:
PART 207—SECURITIES CREDIT BY PERSONS
OTHER THAN BANKS, BROKERS,
OR DEALERS
1.
Paragraphs (d) and (e) of section 207.5 (the
Supplement to Regulation G) would be amended as set
forth below:
SECTION 207.5—SU PPLEM EN T
*
*
*
(d)
Requirements for inclusion on List of OTC
Margin Stocks. Except as provided in subparagraph (4)
of § 207.2(f), such stock shall meet the requirements
th a t:
(1) The stock is subject to registration under sec­
tion 12(g)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 7 8 /( g ) ( l) ) , is issued by an insurance com­
pany subject to section 1 2 (g )(2 )(G ) (15 U.S.C.
7 8 J (g )(2 )(G )) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment
management company subject to registration pursuant
to section 8 of the Investment Company Act of 1940
(15 U.S.C. §80a-8),
(2) Four or more dealers stand willing to, and do
in fact, make a market in such stock including making

regularly published
bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Securi­
ties and Exchange Commission from registration as a
national securities exchange pursuant to section 5 of
the Securities Exchange Act of 1934 (15 U.S.C. 78e),
(3) There are 1,200 or more holders of record, as
defined in SEC rule 12g5-l (17 C.F.R. §240.12g5-l),
of the stock who are not officers, directors, or beneficial
owners of 10 per cent or more of the stock, or the aver­
age daily trading volume of such stock, as determined
by the Board, is at least 500 shares,
(4) The issuer is organized under the laws of the
United States or a State^ 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,
(6) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
(7) There are 500,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements that:
(8) The shares described in subparagraph (7) of
this paragraph have a market value of at least $5 million,
(9) The minimum average bid price of such stock, as
determined by the Board, is at least $5 per share, and
(10) The issuer has at least $5 million of capital,
surplus, and undivided profits.

10 per cent of the stock; and shall meet two of the three
additional requirements th a t:
(7) The shares described in subparagraph (6) of
this paragraph continue to have a market value of at
least $2.5 million,
(8) The minimum average bid price of such stock,
as determined by the Board, is at least $3 per share, and
(9) The issuer continues to have at least $2.5 million
of capital, surplus, and undivided profits.
PART 220—CREDIT BY BROKERS
AND DEALERS
2.
Paragraphs (h) and (i) of section 220.8 (the
Supplement to Regulation T ) would be amended as set
forth below:
SECTION 220.8—SU PPLEM EN T

(h) Requirements for inclusion on List of OTC
Margin Stocks. Except as provided in subparagraph (4)
of § 220.2(e), OTC margin stock shall meet the re­
quirements th a t:
(1) The stock is subject to registration under sec­
tion 1 2(g)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 7 8 /( g ) ( l) ) , is issued by an insurance com­
pany subject to section 1 2 (g )(2 )(G ) (15 U.S.C. 78/
( g ) ( 2 ) ( C ) ) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment
management company subject to registration pursuant
to section 8 of the Investment Company Act of 1940
(15 U.S.C. §80a-8),
(2) Four or more dealers stand willing to, and do
in fact, make a market in such stock including making
(e)
Requirements for continued inclusion on List regularly published
bids and offers for such
of OTC Margin Stocks. Except as provided in substock for their own accounts, or the stock is registered
paragraph (4) of § 207.2(f), such stock shall meet the
on a securities exchange that is exempted by the Se­
requirements th a t:
curities and Exchange Commission from registration
(1) The stock continues to be subject to registration
as a national securities exchange pursuant to section 5
under section 12(g) (1) of the Securities Exchange Act
of the Securities Exchange Act of 1934 (15 U.S.C.
of 1934 (15 U.S.C. 7 8 /( g ) ( l) ) , or if issued by an
78e),
insurance company such issuer continues to be subject
(3) There are 1,200 or more holders of record as
to section 1 2 (g )(2 )(G ) (15 U.S.C. 7 8 /(g )(2 )(G ))
defined in SEC Rule 12g5-l (17 C.F.R. §240.12g5-l),
and to have at least $1 million of capital and surplus,
of the stock who are not officers, directors, or beneficial
or if issued by a closed-end investment management
owners of 10 per cent or more of the stock, or the aver­
company such issuer continues to be subject to registra­
age daily trading volume of such stock, as determined by
tion pursuant to section 8 of the Investment Company
the Board, is at least 500 shares,
Act of 1940 (15 U.S.C. § 80a-8),
(4) The issuer is organized under the laws of the
(2) Three or more dealers stand willing to, and do
United States or a State^ and it, or a predecessor in
in fact, make a market in such stock including making
interest, has been in existence for at least 3 years,
regularly published &
07M /idc bids and offers for such
(5) The stock has been publicly traded for at least
stock for their own accounts, or the stock is registered
6 months,
on a securities exchange that is exempted by the Securi­
(6) Daily quotations for both bid and asked prices
ties and Exchange Commission from registration as a
for the stock are continuously available to the genera!
national securities exchange pursuant to section 5 of
public, and
the Securities Exchange Act of 1934 (15 U.S.C. 78e),
(7) There are 500,000 or more shares of such stock
(3) There continue to be 800 or more holders of
outstanding in addition to shares held beneficially by
record, as defined in SEC Rule 12g5-l (17 C.F.R.
officers, directors, or beneficial owners of more than
§240.12g5-l), of the stock who are not officers, direc­
10 per cent of the stock; and shall meet two of the
tors, or beneficial owners of 10 per cent or more of the
three additional requirements th a t:
stock, or the average daily trading volume of such stock,
(8) The shares described in subparagraph (7) of
as determined by the Board, is at least 300 shares,
this^ paragraph have a market value of at least $5 million.
(4) The issuer continues to be a U. S. corporation,
(9) The minimum average bid price of such stock,
(5) Dailv quotations for both bid and asked prices
as determined by the Board, is at least $5 per share, and
for the stock are continuously available to the genera!
(10) The issuer has at least $5 million of capital,
public, and
surplus, and undivided profits.
(6) There are 300,000 or more shares of such stock
(i) Requirements for continued inclusion on List
outstanding in addition to shares held beneficially by
of OTC Margin Stocks. Except as provided in subofficers, directors, or beneficial owners of more than
6 As defined in 15 U.S.C. 78c(a) (16).

9 As defined in 15 U.S.C. 78c(a) (16).




2

paragraph (4) of § 220.2(e), OTC margin stock shall
meet the requirements th a t:
(1) The stock continues to be subject to registration
under section 1 2(g)(1 ) of the Securities Exchange Act
of 1934 (15 U.S.C. 7 8 /( g ) ( l) ) , or if issued by an
insurance company such issuer continues to be subject
to section 1 2 (g )(2 )(G ) (15 U.S.C. 7 8 /(g )(2 )(G ))
and to have at least $1 million of capital and surplus, or
if issued by a closed-end investment management com­
pany such issuer continues to be subject to registration
pursuant to section 8 of the Investment Company Act
of 1940 (15 U.S.C. §80a-8),
(2) Three or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published
bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Securi­
ties and Exchange Commission from registration as a
national securities exchange pursuant to section 5 of
the Securities Exchange Act of 1934 (15 U.S.C. 78e),
(3) There continue to be 800 or more holders of
record, as defined in SEC Rule 12g5-l (17 C.F.R.
§240.12g5-l), of the stock who are not officers, direc­
tors, or beneficial owners of 10 per cent or more of the
stock, or the average daily trading volume of such stock,
as determined by the Board, is at least 300 shares,
(4) The issuer continues to be a U. S. corporation,
(5) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
(6) There are 300,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements th a t:
(7) The shares described in subparagraph (6) of
this paragraph continue to have a market value of at
least $2.5 million,
(8) The minimum average bid price of such stock,
as determined by the Board, is at least $3 per share, and
(9) The issuer continues to have at least $2.5 million
of capital, surplus, and undivided profits.
PART 221—CREDIT BY BANKS FOR THE
PURPOSE OF PURCHASING OR CARRYING
MARGIN STOCKS
3.
Paragraphs (d) and (e) of section 221.4 (the
Supplement to Regulation U ) would be amended as
set forth below:
SECTION 221.4— SU PPLEM EN T
(d)
Requirements for inclusion on List of OTC
Margin Stocks. Except as provided in subparagraph (4)
of §221 3 (d ), OTC margin stock shall meet the re­
quirements that:
(1) The stock is subject to registration under sec­
tion 1 2 (g )(1 ) of the Securities Exchange Act of 1934
(15 U.S.C. 7 8 /( g ) ( l) ) , is issued by an insurance com­
pany subject to section 1 2 (g )(2 )(G ) (15 U.S.C.
7 8 /(g )(2 )(G )) that has at least $1 million of capital
and surplus, or is issued by a closed-end investment
management company subject to registration pursuant
to section 8 of the Investment Company Act of 1940
(15 U.S.C. §80a-8),
(2) Four or more dealers stand willing to, and do in
fact, make a market in such stock including making
regularly published
bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Securi­



3

ties and Exchange Commission from registration as a
national securities exchange pursuant to section 5 of
the Securities Exchange Act of 1934 (15 U.S.C. 78e),
(3) There are 1,200 or more holders of record, as
defined in SEC Rule 12g5-l (17 C.F.R. §240.12g5-l)
of the stock who are not officers, directors, or beneficial
owners of 10 per cent or more of the stock, or the aver­
age daily trading volume of such stock, as determined
by the Board, is at least 500 shares,
(4) The issuer is organized under th$ laws of the
United States or a State^ 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,
(6) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
(7) There are 500,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the
three additional requirements th a t:
(8) The shares described in subparagraph (7) of
this paragraph have a market value of at least $5 million,
(9) The minimum average bid price of such stock,
as determined by the Board, is at least $5 per share, and
(10) The issuer has at least $5 million of capital,
surplus, and undivided profits.
(e)
Requirements for continued inclusion on List
of OTC Margin Stocks. Except as provided in subparagraph (4) of § 221.3(d), OTC margin stock shall
meet the requirements th a t:
(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 ) ( l) ) , or if issued by an
insurance company such issuer continues to be subject
to section 1 2 (g )(2 )(G ) (15 U.S.C. 7 8 f(g )(2 )(G ))
and to have at least $1 million of capital and surplus,
or if issued by a closed-end investment management
company such issuer continues to be subject to registra­
tion pursuant to section 8 of the Investment Company
Act of 1940 (15 U.S.C. § 80a-8),
(2) Three or more dealers stand willing to, and do
in fact, make a market in such stock including making
regularly published
bids and offers for such
stock for their own accounts, or the stock is registered
on a securities exchange that is exempted by the Securi­
ties and Exchange Commission from registration as a
national securities exchange pursuant to section 5 of the
Securities Exchange Act of 1934 (15 U.S.C. 78e),
(3) There continue to be 800 or more holders of
record, as defined in SEC Rule 12g5-l (17 C.F.R.
§ 240.12g5-l), of the stock who are not officers, direc­
tors, or beneficial owners of 10 per cent or more of the
stock, or the average daily trading volume of such stock,
as determined by the Board, is at least 300 shares,
(4) The issuer continues to be a U.S. corporation,
(5) Daily quotations for both bid and asked prices
for the stock are continuously available to the general
public, and
(6) There are 300,000 or more shares of such stock
outstanding in addition to shares held beneficially by
officers, directors, or beneficial owners of more than
10 per cent of the stock; and shall meet two of the three
additional requirements th a t:
9 A s defined in 15 U .S.C . 7 8 c ( a )( 1 6 ) .

Secretary, Board of Governors of the Federal Reserve
System, Washington, D. C. 20551, to be received no
later than April 23, 1976. All material submitted should
include the docket number R-0025. Such material will
be made available for inspection and copying upon re­
quest, except as provided in § 261.6(a) of the Board's
Rules Regarding Availability of Information.
This notice is published pursuant to section 553(b)
of Title 5, United States Code, and § 262.2(a) of the
Rules of Procedure of the Board of Governors of the
Federal Reserve System (12 C.F.R. 262.2(a)).
By order of the Board of Governors, March 10, 1976.

(7) The shares described in subparagraph (6) of this
paragraph continue to have a market value of at least
$2.5 million.
(8) The minimum average bid price of such stock,
as determined by the Board, is at least $3 per share, and
(9) The issuer continues to have at least $2.5 million
of capital, surplus, and undivided profits.
To aid in the consideration of this matter by the
Board, interested persons are invited to submit relevant
data, views, or arguments concerning this proposal. Any
such material should be submitted in writing to the

Table 1
Summary of Proposed Changes to OTC Margin Stock
Initial Listing Requirements"

(1) Stock is registered under
the Securities Exchange Act
of 1934
(2) Stock has 5 market makers
(3) Stock has 1200 public holders
of record
(4) Issuer is U. S. corporation in
existence for at least 3 years
(5) Stock publicly traded for at
least 6 months
(6) Stock prices are continuously
available to the public
(7) 500,000 publicly held shares
(8) Stock has market value of
$5 million
(9) Stock has average price of
$10 per share
(10) Issuer has at least $5 million
of capital, surplus, and
undivided profits

(1) Same
(2) Stock has 4 market makers

(3) Same, or has average daily
volume of 500 shares
(4) Same

(5) Same
(6) Same

(7) Same
(8) Same

(9) Stock has average price of

$5 per share
(10) Same

a A ll of the first seven requirements must be satisfied, but only
two of the final three requirements must be met.

Table 2
Summary of Proposed Changes to OTC Margin Stock
Continued Listing Requirements"
Pro/Kwd
(1) Stock is registered under the
Securities Exchange Act of 1934
(2) Stock has 3 market makers
(3) Stock has 800 public holders
of record
(4) Issuer is U. S. corporation
(5) Stock prices are continuously
available to the public
(6) 300,000 publicly held shares
(7) Stock has market value of
$2.5 million
(8) Stock has average price of
$5 per share
(9) Issuer has at least $2.5
million of capital, surplus,
and undivided profits

(1) Same
(2) Same
(3) Same, or has average daily
volume of 300 shares
(4) Same
(5) Same
(6) Same
(7) Same
(8) Stock has average price of
$3 per share
(9) Same

a A ll of the first six requirements must be satisfied, but only
tw o of the final three requirements must be met.




4