5-257.5
The enactment of the Securities
Exchange Act of 1934 is generally regarded as one of the congressional
responses to the stock market crash of 1929 and the long and deep
depression that followed. The act was quite comprehensive. It required
the licensing of all securities exchanges and provided for regulation
of many of the trading practices that exist on the exchanges. It included
requirements designed to prevent manipulation of security prices and
excessive trading in securities by exchange members. Among its provisions
are those relating to control of margin requirements.
While the bill that eventually became
the Securities Exchange Act of 1934 was being considered by Congress,
several alternatives for the administration and enforcement of the
act were proposed. Ultimately, responsibility was placed with a new
agency, the Securities and Exchange Commission. Administrative responsibility
for the margin provisions went to the Board of Governors of the Federal
Reserve System, since Congress believed that the Federal Reserve was
“the most experienced and best equipped credit agency of the Government,”
and the Federal Reserve was already vested with related powers.
The Securities Exchange Act included a specific mandate
that the Federal Reserve issue margin regulations applying to broker-dealers.
It also authorized the Federal Reserve to raise or lower the requirements
as it deemed necessary and to apply similar regulations to banks and
other persons. The Board’s authority does not include the power to
set margin on “exempt” securities, which are chiefly United States
and municipal securities.
In 1968, amendments to the act gave the Federal Reserve
the authority to give loan value to certain over-the-counter securities
and, for the first time, put non-exchange, member broker-dealers,
or those not doing business through such members, under the credit
restraints of the margin regulations. This expanded the coverage of
the regulation to persons selling shares in insurance premium funding
programs and mutual funds as well as to brokers specializing in less
conventional types of securities, such as oil and gas limited partnership
interests and real estate investment contracts. In 1970, to gain some
control over the unregulated flow of foreign credit into the United
States securities markets, Congress amended the act to cover borrowers
as well as lenders.
