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To: jach who wrote (29020)	12/6/1998 9:06:00 AM
From: Glenn D. Rudolph	Respond to of 164684

Internet Margin Trades Subject to Tighter Rules Related Articles The New York Times: Your Money Forum Join a Discussion on Investing By KENNETH N. GILPIN oncerned about wild swings in the prices of hot Internet stocks, a number of brokerage houses said last week that they had changed their rules so that investors who buy these stocks on margin -- with money borrowed from the broker -- may have to put up more of their own money to maintain their holdings. The increases vary from firm to firm and don't apply to all investors. And some brokerages have not changed their margin rules at all. Nevertheless, the recent big swings in prices of companies like Ebay, Yahoo and Amazon.com led Salomon Smith Barney to raise its "maintenance" margin limit on 18 stocks to 40 percent from 35 percent. Under rules originally set by the Federal Reserve Board, customers who trade on margin must put up to 50 percent in cash or securities to cover the initial transaction's market value. Stock market officials, however, mandate that in order to maintain the position, investors need only put up 25 percent of the holding's value. But most brokerages have maintenance margins of 35 percent on all stocks. On Thursday, Charles Schwab & Co. became the latest broker to raise them. It said it had raised maintenance requirements on 22 Internet stocks to 50 percent, from 35 percent. But the rules will not apply to all clients. "The 50 percent maintenance requirement will apply to those accounts with highly concentrated positions in Internet stocks," Dan Hubbard, a Schwab spokesman, said. He said the new requirements would "apply to a very, very small percentage of the 5.4 million customer accounts here at Schwab." In cases where the new minimums apply, this is how they will work: Assume that a customer wants to buy one of the stocks on Schwab's list on margin, and the current market value of the stock is $100 a share. In keeping with the Fed's guidelines, the customer initially would be required to put up $50 a share for the stock and take on $50 worth of margin debt from Schwab. If the price of the stock falls 30 percent, to $70 a share, the current market value of the customer's equity has fallen to $35 a share. So the value of customer's equity has declined by 30 percent, too. His margin debt, meanwhile, has stayed constant, at $50. To comply with Schwab's new maintenance requirements, a broker will call the client and ask for $15 a share more to achieve the 50 percent maintenance level. Usually, clients are given several days to pay. It is not clear how much buying of these stocks is being done on margin, or how many investors have been unable to meet margin calls. "We don't have any firm statistics, but the people who do trade these stocks do tend to trade them on margin," said Melissa Gitter, a spokeswoman for Waterhouse Securities, a brokerage subsidiary of the Toronto Dominion Bank. In the last two weeks, Waterhouse has raised margin requirements on 20 Internet stocks. While the firm never before increased the requirements for so many stocks, the action was not unprecedented. Its most recent increase involved biotechnology stocks in the early 1990s. search.nytimes.com