Joint Statement By NYSE and NASD On the Continuing Growth In Investor Margin Debt

NASD Logo                                              NYSE Logo

February 24, 2000

The continuing growth of the amount of customer margin account balances during the past year has caused some commentors to question whether the investing public is over leveraging its investment positions. Certainly, the growth of the overall equity securities market and of particular market segments has generated considerable investor interest in the market. However, the increasing use of margin borrowings is not without risk. In the event of a severe market contraction, some investors may not be in a position to sustain the leveraging and will be required to liquidate their positions under unfavorable market conditions.

In view of the continuing increase in participation of individual investors in the market, the New York Stock Exchange and NASD are asking their member firms to take several steps relative to the extension of margin credit as follows:

  • Individual investors should continue to be advised about the risk of investing on margin.
  • Sales managers and account executives should be advised of the appropriate steps to be taken when and if individual investors significantly change their levels of margin borrowings.
  • Any account executive incentive programs that would promote the solicitation of margin accounts should be carefully reviewed and curtailed if appropriate.

Further, member organizations are reminded that in addition to the 25% maintenance margin requirements provided for under our Margin Rules 431 and 2520 respectively, paragraph (d) requires that procedures be established by member organizations to:

(1) review limits and types of credit extended to all customers;

(2) formulate their own margin requirements; and

(3) review the need for instituting higher margin requirements, mark-to-markets and collateral deposits than are required by this Rule for individual securities or customer accounts.

Section (f) (1) of our Margin Rules provides, with regard to the determination of value for margin purposes, that "…Substantial additional margin must be required in all cases where the securities carried in 'long' or 'short' positions are subject to unusually rapid or violent changes in value…"

We understand that many member organizations generally maintain higher house maintenance margin requirements on equities than 25%, and have imposed still higher maintenance requirements on specific stocks and market segments. The NASD and NYSE request that member organizations review their maintenance margin policies and requirements to consider whether further changes are necessary to address the rapid growth of margin borrowing.

Thank you for your attention to these requests.

Frank G. Zarb                                                            Richard A. Grasso
Chairman and Chief Executive Officer                           Chairman and Chief Executive Officer
National Association of Securities Dealers                    New York Stock Exchange, Inc.