Evening star., 1936-03-26
NEW STOCK RULES
ISSUED BY BOARD
$500 Minimum Margin for
Purchases Through Banks
or Brokers.
Nv the Associated Press.

6y the Associated Press
A IS Der cent minimum margin for
purchasers of stocks, through either
banks or brokers, has been prescribed
by the Federal Reserve Board. The
ruling becomes effective on May for
stocks purchased through banks and
on April l for those purchased through
brokers.
This was done in conformity with
the securities exchange act to make
uniform the credit values of securi-
ties as handled by banks and brokers.
It was explained that for three-quar-
ters of all trading through brokers at
present no change would result.
In the past margins on securities
bought through brokers have been
regulated optionally by complicated
formula dependent upon past prices
of the issues purchased. The new reg
ulation served to simplify this pro-
cedure.
At the same time, the board issued
regulations covering the activities OF
the new Federal Open Market Com
mittee, which is given authority to de-
termine the amounts of Government
securities bought and sold by the Fed
eral Reserve banks.
Year Under Discussion.
In Reserve Board quarters it was
said that the new regulations on mar
gins were not issued through any pres
ent fear of any imminent inflationary
boom. They had been under consider
alton and discussion for year, it was
said, and had just reached completion
The margin regulations were made
to apply only to listed securities on
registered stock exchanges, thus hav-
ing no effect upon the large over-the-
counter market, but of course applying
to all transactions on the great New
York Stock Exchange. An explana-
tory statement issued at the same time
said:
The regulation is not retroactive
It does not restrict the right of a bank
to extend credit, whether on securities
or otherwise, for any commercial
agricultural, or industrial purpose, or
for any other purpose except the pur-
chasing or carrying of stocks registered
on a national securities exchange.
The regulation does not prevent a
bank from taking for any loan COL
lateral in addition to that required
by the regulation nor does it require
a bank to reduce any loan, to obtain
additional collateral for any outStand-
ing loan, or to call any outstanding
loan because Of insufficient collateral
Purchases After May 1.
Thus, it was said, all accounts on
the books of the banks on May l
will be exempted from the regulation,
except, of course, purchases made
after that date.
The maximum loan value applying
to registered stocks has been fixed
at IS per cent of current market value
which is the percentage now applica-
BILE, under regulation T, to three
fourths of the trading on the ex-
changes at the present time" the
statement said.
So far as the banks were concerned,
exemptions were made for such trans
actions as loans on securities from a
bank here to foreign banking in
stitution, loans to persons whose total
Indebtedness to the bank, including
the loan made, does not exceed 81 900,
loans to brokers and dealers to meet
emergency needs, and loans to be
repaid on the same day that they
ere made.
"On and after May l, 1896" said
the regulation, mo bank shall make
any loan secured directly or indirectly
by any stock for the purpose Of pur-
chasing or carrying any stock regis
tered on a national securities exchange
in any amount exceeding the maxi
mum loan value of the collateral, as
prescribed from time to time for stocks
in the supplement to this regulation
and as determined by the bank in
good faith for any collateral other
than stocks"
Maximum Loan Value.
Attached was a supplement saying
sFor the purpose of section of regu-
lation U, the maximum loan value
OF any stock, whether or not regis
tered on a national securities ex-
change, shall be IS per cent Of its
current market value as determined
by any reasonable method"
The margin requirement for pur-
chasers of stocks through brokers re-
Gently was raised from As per cent to
IS per cent, but the optional formula
based on past prices of stocks at that
time was retained. This was covered
In the so-called regulation T."
The amendment to regulation S."
announced last night, abolishing the
optional formula" method, will be-
come effective April l..
Explaining by example the new reg
ulations as they will affect banks, a
Federal Reserve Board official cited
the following to reporters:
"A manufacturer desires to borrow
from his bank to buy new machinery
or materials. He offers stocks with a
market value Of $4,000 as collateral
for the loan.
For loans Of this type, the regula-
tionS do not apply. The bank would
not be restricted to lending s4,5o0, but
could lend as much as in its judg-
ment 1t felt the manufacturer was en-
titled.
But If the manufacturer wanted to
use such collateral for loan to buy
more stocks, his loan on the collateral
would be limited to $4,000, plus IS per
cent of the market value of the stocks
he intended to buy, if such stocks also
were posted with the bank"