Tighter Credit

Concerned over "the excessive use of credit for purchasing securities," the Federal Reserve Board last week ordered new regulations to curb stock market credit. The Fed kept its basic rule that investors must put up 90% cash on new stock purchases. It added new provisions, effective June 15, to cover accounts in which stocks were bought on margin before the present margin rate. Formerly, if an investor sold stock, held on a margin below 90%, he had to use only 10% of the proceeds to pay off his debt to the broker. Now he must apply 50% of the proceeds. One exception: if the investor sells his stock and buys another on the same day, he need not pay off any of the debt.

The new rules also bring convertible debentures under margin rules for the first time. After converting the debenture into stock, the investor has 30 days to supply the 90% margin. The Fed will also keep a close watch on bank credit, which has been used to get around margin requirements. Banks often lent up to 50% on stocks. Now, if the bank lends more than 10%, both a bank officer and the borrower must sign a statement that the funds will not be used to buy listed securities.

The presidents of both the New York Exchange and the American Stock Exchange denied that stocks were booming on borrowed money. Said the New York Stock Exchange's G. Keith Funston: "There is no evidence of excessive use of credit in the market."

This file is automatically generated by a robot program, so reader's discretion is required.