Evening star., 1955-01-05
Margin Requirement
For Stock Purchases
Raised 10 HPer Cent
sr .he As.eeIs.sd prs..


BY The Assoeicssd Prsss
The Government put a mod
erately restraining hand on the
surging stock market today, call
ing for purchasers Of stocks to
put up at least so per cent
cash instead Of the previous so
per cent.
The action, announced by the
Federal Reserve Board late yes
terday. was promptly protested
by the New York Stock Ex-
change president. Keith Fun
ston. as restraining 'the proper
function of the market and the
free interplay of the basic law
Of supply and demand"
The increased down pay
ment" Is effective on stocks
bought today and hereafter.
The stock market has been adj
vancing steadily for more than
is months. and since the No
vember elections it has been
surging ahead with almost un-
precedented speed.
Average Down Slightly.
The Associated Press average
Of so stocks slipped yesterday
at $155.8o after reaching $IS6.40
on Monday. a level topped only
by the peak Of $l57.70 on Sep
tember 8, 1929. shortly before
the big Wall Street crash. There
were no Federal cash minimums
in 1929.
The Reserve Boards action
had more a preventive than Q
fire fighting look.
What 1t did was raise by one
f1fth-from so to go per cent
the margin or cash requirement
In stock transactions.
The Government has no au-
thority to regulate stock prices.
A 1884 law authorizes the Re-
serve Board only to prevent
the excessive use of credit" in the
stock market. The theory be-
hind the action is that a hike
In the cash requirement will cut
down on speculative buying.
New York brokers generally
agree that speculation on mar
gin is not a major factor In the
present boom. The ratio ! Of
money borrowed by brokers to
lend for margin trading is only
about l per cent of the value Of
all securities listed on the New
York Stock Exchange. In 1929
1t was nearly 10 per cent.
According to the latest avail
able Reserve Board figures, total
credit extended to customers by
brokers and dealers increased
from $l,655, 100000 on February
/, 1854. to $2,202, 900, 900 last
November 80.
1t was possible the action
might even stimulate market
activity. Some officials conceded
the boost in margin require
ments might be taken by many
investors as indicating the Gov
ernment thought the market
would continue to advance.
Harold L. Bache, senior part
ner in the big investment bank.
ling firm of Bache and Co.. COM
mented in New York that the
move shows the Government Is
taking steps to make sure that
nothing in the way Of excessive
market movements will develop
to upset the prosperity the coun-
try Is enjoying"
Protests Increase.
Mr.. Funston, on the other
hand, said in statement issNed
in New York:
THE effect of the increase. Of
course, will be to inhibit the
proper functioning Of the mar
ket and the free interplay of the
basic law of supply and demand"
He said the action came "at
a time when industry is seeking
new funds to build new plants
and new equipment-at time.
in other words, when an active
and liquid stock market Is es-
sential to the vitality OF our
economy"
Edward T. Mccormick. presi-
dent Of the American Stock Ex-
change, said the action was sur
prising. Saying he thought the
purpose of margin requirements
was to prevent unhealthy use Of
credit" in stock trading, Mr.. Me-
Cormick said the amount now
being used cannot by any
stretch of the imagination be
considered high or unhealthy"
The Reserve Board could have
lacked the margin up to the
disappearing point--i00 per cent
cash---as it did during 1946. II
the action does not have the ef-
feet the board aimed at--squeez-
ing undesirable speculation out
of the market rise--it can at any
time raise margins again.
The deciding factor In margin
requirement decisions Is the
Judgment of the Reserve Board
headed by William McChesney
Martin, ir., a former president of
the New York Stock Exchange
as to what kind OF stock price
rise Is occurring. that is, whether
or not the rise is based on excess
sive use of credit.
From January II, 1851, to Feb
ruary 10, 1853. the Reserve Board
fixed the stock margin require
ment at rs per cent. as one lof
many governmental measures
against initiation following the
outbreak Of fighting In Koreat
The board dropped the margin
requirement to SO per cent On
February 20. 1853, and that rate
prevailed until today.
Rumors that the Reserve Board
would boost margin requirements
had popped up from time to
time ctFaca faef fan and hara yna