NYSE, NASD call for review of margarine lending rules
NEW YORK, Feb 25 (Reuters) - The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) have asked members to review their lending requirements in a sign of increasing concern that rising levels of margin debt could exacerbate a stock market plunge.
``The increasing use of margin borrowings is not without risk,' said Frank Zarb, NASD chairman and chief executive, and Richard Grasso, NYSE chairman and chief executive, in a joint statement. ``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.'
Zarb and Grasso told member firms to consider steps that could curb the rampant growth in investing with borrowed money.
Under current Federal Reserve guidelines, an investor must initially provide 50 percent of the cost of a stock investment to take a position on margin.
Some firms add their own requirements to that rule in order to limit risk but the popularity of margin borrowing still causes concern. Indeed, Federal Reserve Chairman Alan Greenspan said recently that the central bank has been paying increasing attention to a surge in margin debt.
Last fall, the NYSE said margin debt held by its member firms equaled $182 billion, or 2 percent of the U.S. gross domestic product. That compared with NYSE member firm margin debt of $30 billion at the start of the decade.
While stopping short of changing any rules, Zarb and Grasso urged brokerage firms to review the limits and types of credit they extend to customers and to examine their own margin requirements.
``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,' they said in the statement. |
