Evening star. [volume] (Washington, D.C.) 1854-1972, 1934-09-01
MARG|NOPERAT|ON
IS UNDER SCRUTINY
Federal Reserve Board In
tends to Watch Over Bro
kers and Stock Traders.
BY the Associated Press.

BY the Associated Press.
How the Federal Reserve Board in
tends to watch closely the margin
operations of brokers and stock
traders was disclosed today in the
preliminary draft of board regula-
tionS.
The draft states actual margin re-
quirementS as cited in the securities
exchange act. These provide for ex-
tension of credit to traders of from
between SIS and rs per cent of stock
prices, that is margin requirements
would range between rs and As per
cent
These figures, however, were said
by an official to be tentative in ma
ture. Contrary to previous reports,
they may be changed, or made more
detailed to cover margins for vari-
Gus price groups of stocks. That is,
for instance, margins for stocks SELL
ing under $40 may be stiffened by
the board.
The draft itself, entitled "regula-
ton T, series of extension and
maintenance of credit by brokers,
dealers and members of securities ex-
changes" goes into considerable de-
tail as to how margin accounts may
be continued after the original ex-
tension of credit.
This detail is being vigorously criti-
cized by brokers who feel the board is
attempting to go so far that brokers
might be required to double their list
of employees in order to take care of
new conditions. Brokers are also con-
cerned lest the rules further decrease
the iquidity of the market.
The preliminary draft is in 10 Sec
tons. In them the word creditor" is
used rather than broker" so as to
include all persons in or outside OF
an exchange who extend or arrange
credit for traders.
Time May Be Extended.
Brokers are instructed to obtain
the margin required for the initial
extension of credit before the close
of business the second day following
the execution of the transaction.
However, if the customs cannot be
reached in case of difficulty, the Fed
eral Reserve agent or any assistant
agent may extend this time an I'M
stated number of days in such Eek
ceptional cases"
The amount of credit which shall
be deemed to be outstanding at any
given time after the original sale or
purchase, shall be deemed to be the
| adjusted credit balance"
This balance is further defined TO
mean that if the customer is short,
the balance is the current market
value of the securities plus the mar
gin requirements of the exchange or
| the broker.
If the account contains future COM
| mitments in commodities or foreign
| exchange or unissued securities, the
| balance must also include at least the
| margin requirements of the exchange
| or brokers.
To this must be added any amount
to be paid for securities bought for
the customer but not yet paid for by
broker, and minus any amount to be
received for securities sold for the
customer for which payment has not
been received by the broker.
| To this is added the net debit bal
| ance of the account, or the net credit
balance is subtracted.
Lending Is Restricted.
Brokers may not lend in excess OF
| the current market value of exempted
| securities. Credit relations between
brokers are regulated on the same
basis as between customer and broker
Money may not be withdrawn by
customers from undermargined &C
! counts, nor may securities be with
drawn or substituted.
Neither may an undermargineo
customer buy securities except fol
equal substitutions, or to cover a
short sale, without providing addi-
tional margin. Short sales in ar
undermargined account are banned
on the same basis.
Transactions occurring before en-
acting of the securities act are ex
empt from the act until July /. 1887
except that the Reserve Board may
make rules to prevent circumventior
of the act.