Full text of Federal Reserve Bank of New York Circulars : 8029. Regulation T

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FED ER AL RESERVE BANK
O F NEW YORK
Circular No. 8 0 2 9 "T
January 5 , 1977
J

REGULATION T
Temporary Suspension of Uniform Margin Requirements for Option Specialists
To All Brokers and Dealers, and Members of National
Securities Exchanges, in the Second Federal Reserve District:

Following is the text of a statement issued December 29, 1976 by the Board of Governors of the
Federal Reserve System:
The Board of Governors of the Federal Reserve System today suspended until further notice — for
option specialists — a provision of Regulation T ( margin requirements for brokers and dealers) which
provides a uniform margin for the writing of options.
The uniform margin rule will go into effect for others, as previously scheduled, on January 1, 1977.
On December 15, the Board published for comment — to be received by January 17, 1977 — a proposed
amendment to Regulation T that, among other things, would allow an option specialist to use an alternative
method of calculating the required margin from that provided in the uniform rules to be effective January 1.
Since the Board will not be able to conclude action on its proposed alternative method of calculation
by January 1, it is suspending the effective date of the uniform rules, as they apply to option specialists,
pending further announcement.

Printed below is the text of the Board’s Order in this matter.
P

aul

A.

V

olcker,

President.

[Reg. T]
CREDIT BY BROKERS AND DEALERS
(Docket No. R-0004)

The Board of Governors, pursuant to authority con­
tained in sections 7 and 23 of the Securities Exchange
Act of 1934, as amended (15 U.S.C. 78g and w), pro­
posed for comment on December 16, 1976, an amend­
ment to section 220.4(g) of Regulation T (41 F.R.
5552) governing credit which a broker or dealer
extends to option Specialists in a Specialists’ account.
The existing rule requires that credit terms to Spe­
cialists conform to those available to public customers
in a general account with two exceptions. One excep­
tion is applicable only if the account is that of a joint
venture and it allows the broker carrying the account
to disregard any disproportionate sharing of profits
and losses when analyzing the amount of credit being
extended. The other exception allows the creditor to
determine “in good faith’ the maximum loan value of
anv registered securities in the account rather than
use the maximum loan value (currently 50 per cent)
which the Board of Governors changes from time
to time.
The general account provision for the writing of
options has been amended effective January 1, 1977
(41 F.R. 43895). In order to provide a sufficient
period for the collection and analysis of comments
on the proposed rule for Specialists’ credit and to
avoid the necessity for costly reprogramming of com­
puter systems until such time as the Board acts upon



the proposed amendment to section 220.4 (g), the
Board has determined to permit option Specialists
to continue using the existing provisions of section
220.3(d)(5) after January 1, 1977, instead of the new
general account provision which takes effect on that
date. The effect of this action is to permit, in calculat­
ing the adjusted debit balance of a Specialist’s ac­
count, the use of the amount of any margin cus­
tomarily required by the creditor in connection with
the issuance of the option, rather than the amount
specified by the Board.
To implement this, the Board hereby temporarily
suspends the application of sections 220.3 ( d ) ( 5 ) and
(i) as such sections would apply after January 1, 1977
to transactions in options in a Specialist’s account
within the scope of section 220.4(g) of Regulation T.
The requirements of 5 U.S.C. § 553 with respect to
notice, public participation and deferred effective
date were not followed in connection with this’ sus­
pension since it temporarily relieves a restriction and
the Board found that to follow the requirements of
§ 553 would be impractical and contrary to the public
interest inasmuch as it might involve needless expense
for option Specialists and possible market disruption.
Effective date: This suspension is effective on
January 1, 1977.