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4). 1"$:(A., 7 P Minutes of actions taken by the Board of Governors of the Pea eral Reserve System on Monday, November 26, 1951. PRESENT: Mr. Martin, Chairman Mr. Szymczak Mr. Vardaman Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Memoranda recommending that the basic annual salaries of the t°11°1411-1 employees be increased, effective December 9, 1951: bat Salary Increase f Memorandum To From Name and Title _ Memorandum from Mr. Boothe, Assistant Director, Division of Selective Credit Regulation 11/20/51 Theodore A. Veenstra, Jr., Analyst *3,535 Memorandum from Mr. Mlliams, Assistant Director, Division of Research and Statistics 4/21/51 4/21/51 Elva H. Townsend, Library Assistant Vendel 0. Jeffries, Messenger 3,575 3,655 2,712 2,792 Approved unanimously. 1)11,4 Memorandum dated November 23, 1951, from Mr. Sloan, Director, " of Examinations, recommending that Messrs. Alfred Kirmss, John 11°134) Albert C. Chase, Mi_liam R. Mulligan, and Beekman C. Slack, etf , the s 41111 taf2 of the Federal Reserve Brink of New York, be appointed by the c3f Governors as examiners for the purpose of Participating in an , Ager Of Baak of America, New York, New York, a corporation organized eetion 25(a) of the Federal Reserve Act. Approved unanimously. 13126/51 -2- Letter to Mr. Rounds, First Vice President of the Federal Res erve Bank of New York, reading as follows: "The Board of Governors approves the payment of !alary to Mr. Otto 14. Ten Eyck, Assistant Vice President -1?r the period January 1, 1952 through April 30, 1952, at Present rate of $13,000 per annum, which is the rate fixed by the board of directors as reported in your letter of November 15, 1951." Approved unanimously. Letter to Mr. 1(Altse, Vice President of the Federal Reserve Of New York, reading as follows: "This will acknowledge your letter of November 21 reg n„ ,..-r uing certain expenses in the amount of $48.12 incurred : 1, 137 Mr. Crosse during his recent assignment in Puerto Rico ch you feel should be borne by the Federal Reserve Bank New York rather than being charged to the Insular Governthe"In view of the circumstances described in your letter, .. Board will have no objection to the Reserve Bank's assumalag these expenses." Approved unanimously. Letter to The Plymouth National Bank, Plymouth, Massachusetts, 11R as follows: ha "The Board of Governors of the Federal Reserve System given consideration to your supplemental application for ro'llciary powers, and, in addition to the authority heretoOf e granted to act as trustee, executor, administrator, registrar it 8toeks and bonds, and guardian of estates, grants you authorto act, when not in contravention of State or local law, co allY other fiduciary capacity in which State banks, trust villyanies, or other corporations which come into competition st°1 national bunks are permitted to act under the laws of the : e of Massachusetts, the exercise of all such rights to be uject to the provisions of the Federal Reserve Act and the "‘Tforl. 4 ‘ 1 ' 0' 131261) 1 -3- regulations of the Board of Governors of the Federal Reserve System. "This letter will be your authority to exercise the flducjary powers granted by the Board pending the preparati°n of a formal certificate covering such authorization, Idlich will be forwarded to you in due course." Approved unanimously for transmittal through the Federal Reserve Bank of Boston. Letter to the Federal Deposit Insurance Corporation, Washington, t. .) reading as follows: "Pursuant to the provisions of section 4(b) of the Fede tl ral Deposit Insurance Act, the Board of Governors of e Federal Reserve System hereby certifies that the Anthony Bank, Anthony, Texas, became a member of the Federal tehserve System on November 7, 1951, and is now a member of s , e System. The Board of Governors of the Federal Reserve tf,stem further hereby certifies that, in connection with Tine admission of such bank to membership in the Federal reserve System, consideration was given to the following , actors enumerated in section 6 of the Federal Deposit 41sUrance Act: 1. The financial history and condition of the bank, 2. The adequacy of Its capital structure, 3. Its future earnings prospects, 4. The general character of its management, 5. The convenience and needs of the community to be served by the bank, and 6. Vihether or not its corporate powers are consistent with the purposes of the Federal Deposit Insurance Act." V Approved unanimously. Letter to Mr. John A. Murphy, Resident Partner, Reynolds & Co., 15ze 143-nut Street, Philadelphia, Pennsylvania, reading as follows: "This refers to your letter of November 9, 1951, r„arding the amount that may be withdrawn from an under'rg1ned margin account under Regulation T when a short 11.e is covered. ref, 7 13126/51 -4- "You ! ,iye an illustration in which John Doe sells Short 100 sh7,res of X Corporation at $100. His account undermarrined. When he covers at :Int) he can withdraw rrom the undermargined account 7.4) of the covering proceeds, that is, 75y, of tY500. On the other hand, if he covered at $12) a share, he woulcl, be permitted to with75:0 of ,12,500. It is assumed that after either such withdrawal the account would meet the maintenance arginal requirements of the Stock hxchange. You suggest ,hat the reRulation seems to be unfair in permitting more be withdrawn from the account when the customer is un:Uccessful in his short sale than when he is successful, ncl You ask for an explanation of the reason for this result. T ctually, the operation of the regulation does not clePend on whether the customer has been successful or unsUccessful in his trading. The rules of the regulation regarding withdrawals from undermargined accounts are based the current status of the account at the time of the , ' 4 thdrawal, and the price at which the original Position :as taken does not affect the amount of the permissible ithdrawal. To illustrate, in the example that you give, the c customer would always be able to withdraw 7510 of the nring proceeds, that is 75/0 of $7500 if he covered at '4 )Per share and 75‘p of $12,500 if he covered at $125 per 81,are. This would be true not only if he originally sold c) s ,,rt at $100 a share, but also if he sold short at ;8c) a : 10 4re, $120 a share, or at any other price. It would also s.-t true regardless of what had happened to the price of the in the meantime. For example, it would be true if the' stock, before going to the price at which it was covered, 0.JI, fluctuated upward or downward by $5, $10, $)0, or any *uer amount. In other words, the thing that governs the oUnt of withdrawal permitted from an undermargined account ! 4 Ileither the price at which a position was originally taken or intervening fluctuations in price, but rather the price sh Which the position is closed out. This is true of both °rt and long positions. t, "There are two main reasons for this rule. One is in interest of simplicity. In an account that contained a tieat many different positions that were taken at various e:,es and in various securities, it could be an extremely Plicated task to relate the amount of a withdrawal in at'rUlection with a particular transaction back to the price which the commitment originated. The burdens placed on T 11126/51 -5- "brokers 'by such a rule could be considerable. This would be true even if unrealized gains and losses on other positions in the account were disregarded -- but as a practical matter it probably would also be necessary to consider such gains and losses, and that would still further complicate the ca3culations that would have to be made by the broker. Re gl)lation T avoids such complications by applying its rules at all times on the basis of the current market value of the securities long or short in the account. As you know, a ecnievhat similar principle applies under the maintenance Margiii rules of the New York Stock Exchange. :Another reason for basing withdrawals from under"glned accounts on the current status of security prices the fact that under this rule the amount permitted to 21 e withdrawn when a position is closed out is the same as he amount that would be needed to restore the position. 21' example, in the illustration you give, if the customer ;Oilers 100 shares at 575 a share, the 37500 he can withdraw 111d enable him later to take a short position (or long 4 1 sltion, if he preferred) in 100 shares of the same or any ,her security at $75 a share. ';11e.n it is necessary, as at 5f?eent, to have margin requirements as high as the current .1evel, there may be a real question as to whether it is d4 ' slrable to permit as much as 75p of the proceeds to be veil. Idrawn in such cases. It can be argued that only a smaller 1tage should be withdrawable; and at times in the past withdrawal at all has been permitted in such cases. In tilY event, however, it would not seem desirable to attempt 0 relate the amount of a permissible withdrawal to the Uit of the customer's gain or loss on the individual ,ra nsaction. %e appreciate the opportunity to comment on this matte trr. The Board's regulations are administered on a decenh4lized basis through the Federal Reserve Banks, and if you fi Quld have further questions regarding Regulation T you may 11 116- it convenient to submit them through the Federal Reserve v1,4k of Philadelphia or the Federal Reserve Bank of New York, ' ere they will receive careful attention." T r Approved unanimously 1 , Secretary.
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