Some evidence on the efficacy of security credit regulation in the otc equity market

Security credit regulations are administered by the Federal Reserve Board of Governors (Fed) as a result of the Securities Exchange Act of 1934. These regulations extend to individual over‐the‐counter (OTC) firms via the 1969 Amendment to that Act. Apart from catastrophe prevention, five objectives for extending these regulations to OTC stocks are articulated by the Fed. This paper provides empirical evidence on the efficacy of three of the objectives. The evidence suggests the Fed has been successful in pursuing its objectives.