[Federal Register Volume 61, Number 248 (Tuesday, December 24, 1996)]
[Proposed Rules]
[Pages 67729-67738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32275]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 61, No. 248 / Tuesday, December 24, 1996 /
Proposed Rules
[[Page 67729]]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 344
RIN 3064-AB74
Recordkeeping and Confirmation Requirements for Securities
Transactions
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is issuing
for comment a notice of proposed rulemaking that would amend its
regulations governing recordkeeping and confirmation requirements for
securities transactions. The proposed rulemaking updates, clarifies and
streamlines the FDIC regulations and reduces unnecessary regulatory
costs and other burdens. The proposed rule reorganizes the regulation,
clarifies areas where the rule was confusing, incorporates significant
interpretive positions, and updates various provisions to address
market developments and regulatory changes by other regulators that
affect requirements for recordkeeping and confirmation of securities
transactions by banks.
DATES: Comments must be received by January 23, 1997.
ADDRESSES: Comments should be directed to Jerry L. Langley, Executive
Secretary, Attention: Room F-402, Federal Deposit Insurance
Corporation, 550 17th Street, N.W., Washington, D.C. 20429. Comments
may be hand delivered to Room F-402, 1776 F Street, N.W., Washington,
DC 20429, on business days between 8:30 a.m. and 5:00 p.m. or
transmitted by fax or the Internet. The FDIC's fax number is (202) 898-
3838 and its Internet address is: [email protected] Comments will be
available for inspection and photocopying in Room 100, 801 17th Street,
NW, Washington, DC between 9:00 a.m. and 5:00 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: Miguel D. Browne, Deputy Assistant
Director, Division of Supervision, Securities, Capital Markets and
Trust Branch, (202) 898-6789; John F. Harvey, Review Examiner (Trust),
Securities, Capital Markets and Trust Branch, Division of Supervision,
(202) 898-6762; Patrick J. McCarty, Counsel, Regulations and
Legislation Section, Legal Division, (202) 898-8708, and Gerald
Gervino, Senior Attorney, Regulations and Legislation Section, Legal
Division, (202) 898-3723.
SUPPLEMENTARY INFORMATION:
Background
In 1979, the FDIC adopted Part 344 to require banks under its
jurisdiction to establish uniform procedures and recordkeeping and
confirmation requirements with respect to effecting securities
transactions for customers. The requirements reflected, in part, the
recommendations of the Securities and Exchange Commission's (SEC) Final
Report of the Securities and Exchange Commission on Bank Securities
Activities (June 30, 1977). Part 344's recordkeeping and confirmation
requirements were patterned after the SEC's rules applicable to broker/
dealers and were intended to serve similar purposes for banks involved
in effecting customers' securities transactions.1 See 44 FR 43261
(July 24, 1979). The Board of Governors of the Federal Reserve System
(FRB) and the Office of the Comptroller of the Currency (OCC) also
adopted regulations substantially identical to part 344 in 1979. See 12
CFR 208.8(k), 44 FR 43258 (July 24, 1979) (FRB regulation); 12 CFR part
344, 44 FR 43254 (July 24, 1979) (OCC regulation).
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\1\ Brokers and dealers generally must register with the
Securities and Exchange Commission under the Securities Exchange Act
of 1934. See 15 U.S.C. 78o(a)(1). Banks are excluded from the
definitions of ``broker'' and ``dealer'' and thus are not subject to
the registration provisions. See 15 U.S.C. 78c(a) (4) and (5).
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On December 22, 1995, the OCC published a notice of proposed
rulemaking (60 FR 66517) (OCC proposal) to revise 12 CFR part 12, the
OCC's Recordkeeping and Confirmation Requirements for Securities
Transactions regulation. The purpose of the proposal was to modernize
part 12, address various market developments and regulatory changes,
and reduce regulatory burden, where possible. The FRB published a
substantially similar yet somewhat differently worded proposed rule on
December 26, 1995. See 60 FR 66759. The FDIC published an advance
notice of proposed rulemaking on May 24, 1996, soliciting comment on
issues similar to those raised in the OCC's and FRB's proposed rules,
as well as issues which the OCC and FRB proposals did not address. See
61 FR 26135. The OCC published its final rule revising part 12 on
December 2, 1996. See 61 FR 63958.
The FDIC and the other federal banking agencies are required by
section 303 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRI) to review their regulations to
streamline them to improve efficiency, to reduce unnecessary costs and
to eliminate unwarranted constraints on credit availability. 12 U.S.C.
4803(a). Section 303(a) also requires the Federal banking agencies to
work jointly to make uniform all regulations and guidelines
implementing common statutory or supervisory policies. As noted above,
on July 24, 1979 the FDIC and the other Federal banking agencies
promulgated regulations addressing recordkeeping and confirmation
requirements for securities transactions effected by banks. These
regulations were virtually identical.
Consistent with section 303 of CDRI, the FDIC has reviewed the OCC
and FRB proposals and attempted to draft its notice of proposed
rulemaking in order that it will be nearly uniform with the other
proposals. We note at the outset that the FDIC would prefer a rule
which is uniform with the other agencies. The FDIC's proposed rule is
closer in structure, definitions, language and form to that of the
FRB's proposal than the OCC's final rule. The FDIC requests comment on
all aspects of the notice of proposed rulemaking.
Comments Received and Changes Made
The FDIC received 10 comments on the advance notice of proposed
rulemaking. The comment letters included four from banks and bank
holding companies, four from trade associations, and two from broker/
dealers. Commenters generally supported the proposed changes to part
[[Page 67730]]
344, but several commenters requested changes. One commenter stated
that it was imperative that the Federal banking agencies work together
to issue identical regulations governing securities confirmation and
recordkeeping requirements. The FDIC has carefully considered each of
the comments and has made several changes in response to the comments
received.
Overall, the notice of proposed rulemaking adopts many of the
changes to part 344 which were identified in the ANPR. The section-by-
section discussion in the preamble identifies substantive changes made
to certain sections of the existing rule.
Section-by-Section Discussion
Purpose and Scope (Sec. 344.1)
The notice of proposed rulemaking makes some very minor language
changes to the ``Purpose'' part of Sec. 344.1 to clarify which banks
are subject to the jurisdiction of the FDIC.
The ``Scope'' part of Sec. 344.1 has also been revised and
reorganized to clarify the types of securities transactions which are
generally subject to the regulation. Generally, any state nonmember
insured bank effecting a securities transaction for a customer is
subject to the requirements of part 344, unless the transaction
specifically is exempted.
Exceptions (Sec. 344.2)
The notice of proposed rulemaking relocates and expands the
``Exceptions'' section of part 344 from the end of the regulation to
near the beginning so that it will be clearer as to what types of
transactions are not subject to the regulation. The proposal provides
in paragraph (a) five exceptions for: (1) Banks conducting a small
number of securities transactions; (2) certain government securities
transactions; (3) certain municipal securities transactions; (4)
securities transactions conducted by a foreign branch of a bank; and
(5) certain securities transactions with a broker/dealer. The notice of
proposed rulemaking also clarifies that even though these types of
transactions are excepted from compliance with all or certain sections
of part 344, the FDIC expects a bank conducting securities transactions
for its customers to maintain effective systems of records and controls
to ensure safe and sound operations.
The FDIC is including in the notice of proposed rulemaking a new
exception (5) for certain securities transactions effected through
broker/dealers. The FDIC requested comment in the ANPR on whether part
344 ought to apply to securities transactions effected by broker/
dealers who have entered into ``networking arrangements'' with banks.
Most commenters believe that the FDIC's recordkeeping and confirmation
requirements should not apply to these type of bank operations with a
registered broker/dealer. Registered broker/dealers are already subject
to the SEC's recordkeeping and confirmation rules and are required to
provide their customers with confirmations similar to those which banks
must provide their customers under part 344.2 The FDIC has
determined that part 344 should not generally apply to securities
transactions effected by these registered broker/dealers where the bank
customer has in fact knowingly become a customer of the broker/dealer.
Language has been added to Sec. 344.2(a)(5) to establish a two-part
test. In order for the exception to apply: (A) The broker/dealer must
be fully disclosed to the customer and (B) the customer must have a
direct contractual agreement, e.g. a signed account agreement, with the
broker/dealer. The FDIC believes it is very important that the customer
understand that they are dealing with a broker/dealer and not the bank.
Banks which enter into networking arrangements with broker/dealers and
who do not want those securities transactions to be subject to Part 344
should take adequate steps to make sure that the two-part test is being
observed. Full disclosure by the broker/dealer to the bank customers is
consistent with the Interagency Statement on Retail Sale of Nondeposit
Investment Products.3 The FDIC also agrees that when an employee
of the bank is working for and under the control and supervision of a
registered broker/dealer while soliciting, recommending, purchasing or
selling securities to customers pursuant to a networking arrangement,
Part 344 requirements would not apply. Exception (5) has been drafted
to make it clear that dual employee arrangements are not subject to
Part 344.
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\2\ It is not unusual for a bank effecting a securities
transaction to forward orders to a registered broker/dealer for
execution and clearing. Under these circumstances, the requirements
of part 344 would apply because the bank is effecting the securities
transaction for its customer.
\3\ FDIC Financial Institutions Letter 9-94 (February 17, 1994);
and FDIC Financial Institutions Letter 61-95 (September 13, 1995).
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With respect to networking arrangements, the FDIC requests comment
regarding whether it is common for banks with networking arrangements
to receive separate surcharges or fees from bank customers in addition
to the transaction volume compensation they receive from the broker/
dealer. The FDIC would also like to receive comment on whether banks
which impose these additional surcharges or fees should be required to
comply with Part 344 or separately disclose those additional fees in
some other manner.
Definitions (Sec. 344.3)
The notice of proposed rule adds eight new definitions and requests
comment on modifying two existing definitions. Six of the definitions--
``asset-backed security,'' ``completion of the transaction,''
``crossing of buy and sell orders,'' ``debt security,'' ``government
security,'' and ``municipal security''--were identified in the ANPR and
are included unchanged in the notice of proposed rulemaking. The FDIC
has defined these terms the same way that the Federal Reserve has
proposed them. The OCC proposal has the same terms but the structure
and language used are somewhat different.
The FDIC is also proposing to add two new definitions; ``bank'' and
``cash management sweep account'' which weren't in the ANPR. With
respect to the term ``Bank,'' the FDIC proposes to define the term to
mean ``state nonmember insured bank (except a District bank) or a
foreign bank having an insured branch.'' This change is consistent with
the minor language modifications made to Sec. 344.1 and shortens the
regulation by eliminating the need to repeat ``state nonmember insured
bank (except a District bank) or a foreign bank having an insured
branch'' where ``Bank'' is currently found.
The other new definition would be ``Cash management sweep
account.'' The FDIC requested comment in the ANPR with respect to bank
``sweep account'' activities. Most commenters thought that part 344
should clarify how ``sweep accounts'' are treated under the rule. While
several commenters recommended that sweep accounts be included in the
definition of periodic accounts the FDIC has decided not to do so for
several reasons. First, the FDIC believes that sweep accounts are
different in kind from typical periodic plans such as dividend
reinvestment plans (DRIPs) and automatic investment plans. Sweep
accounts do not normally invest in securities at the regular intervals
(i.e; monthly or quarterly) as do DRIPs and automatic investment plans.
Second, sweep accounts are a significant product/service in their own
right which account for several billions of dollars worth of
transactions on a daily basis and probably exceed the dollar volume in
traditional periodic plans. Due to these differences, the FDIC
[[Page 67731]]
believes it is not appropriate to include sweep accounts in the
definition of periodic plans. Third, the FDIC believes that bank
customers with sweep accounts should receive confirmations more
frequently than periodic plan account holders. The FDIC is proposing
that banks be required to issue confirmations for sweep accounts at
least monthly, if there are securities transactions in the account, and
at least quarterly when there are no transactions. Quarterly
confirmations are proposed for periodic plans. The FDIC believes it
would be confusing if sweep accounts were to be included in the
definition of periodic plans and yet be subject to a more frequent
confirmation requirement. For these reasons, the FDIC is proposing a
separate definition for sweep accounts and requests comment on the
adequacy of such definition.
The term ``cash management sweep account'' would cover any
prearranged, automatic transfer of funds above a certain dollar level
from a deposit account to purchase a security or securities or any
prearranged, automatic redemption or sale of a security or securities
when a deposit account drops below a certain dollar level with the
proceeds being transferred into a deposit account. The term would only
cover transactions involving the purchase or sale of securities. The
FDIC requests comment on whether it is necessary to provide
clarification regarding reporting requirements where monies (interest,
dividends, etc.) earned on a security are deposited into a sweep
account. The FDIC also requests comment on whether the term ``cash
management sweep account'' is appropriate.
The FDIC notes that not all sweep accounts will be treated the same
under part 344. First, totally excluded from the coverage of part 344
would be sweep accounts which sweep from a deposit account into another
deposit account such as a money market deposit account (MMDA).
According to a recently published Federal Reserve study, billions of
dollars are being swept from noninterest bearing deposit accounts into
MMDAs.4 Since there is no purchase or sale of a security involved
in this type of sweep transaction, part 344 would not apply.
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\4\ Senior Financial Officer Survey May 1996, Division of
Monetary Affairs, Board of Governors of the Federal Reserve System
(August 8, 1996).
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While very similar to sweeps into MMDAs, sweep accounts which
automatically transfer idle cash from a deposit account into a money
market mutual fund would be subject to part 344. Shares of money market
mutual funds, or any other interest in an open-end investment company,
are ``securities'' within the Federal securities laws as well as the
definition of ``security'' in part 344. Sweep accounts which
automatically purchase or sell shares in money market mutual funds, or
any other mutual fund, would therefore be subject to the regulation. As
noted above, the FDIC is proposing in Sec. 344.6(d) that banks be
required to provide either monthly or quarterly statements to its
customers depending upon the frequency of securities transactions.
Banks would be required to provide notifications to customers at the
end of the month if a purchase or sale of a security has occurred in
their cash management sweep account. Banks would be required to provide
quarterly statements to cash management sweep account customers at a
minimum.
A third common type of sweep account offered by banks involves
transferring idle cash into a repurchase agreement on government
securities. This type of transaction is clearly within the scope of
part 344, since there is a security being purchased or sold.
However, government securities are subject to the Government
Securities Act of 1986, 15 U.S.C. 78o-5, and the rulemaking authority
of the Bureau of the Public Debt, Department of Treasury. The Treasury
Department requires broker/dealers and banks to provide next day
confirmations on hold in custody repurchase agreements on government
securities. See 17 CFR parts 400 through 405, 449, and 450. We note
that banks offering sweep transactions involving repurchase agreements
on government securities will be subject to more frequent confirmation
requirements than other sweep accounts under part 344.
The FDIC is also requesting comment on modifications to two
definitions. The FDIC proposes to modify the existing definition of
``customer'' to specifically exclude those persons and accounts who
enter into written agreements with fully disclosed broker/dealers for
securities transactions. This modification, which parallels the
proposed exception in Sec. 344.2(a)(5), is intended to make it clear
that bank customers who enter into written agreements with fully
disclosed broker/dealers, such as broker/dealers with networking
agreements with the bank, are not ``customers'' of the bank for
purposes of part 344.
The other proposed modification is to the term ``investment
discretion.'' The FDIC proposes to replace the word ``recommendations''
with the word ``decisions.'' The result would be to narrow the
definition of investment discretion to situations in which the bank
actually makes investment decisions with respect to a customer's
account as opposed to where the bank merely makes recommendations to
the customer. This change would conform the FDIC's definition to the
OCC and FRB's regulatory language as well as track the definition in
the Securities Exchange Act of 1934, as amended. 15 U.S.C. 78c(a)(35).
We note that the OCC proposed in December of 1995 a different
definition of the term ``investment discretion'' in connection with its
Trust Regulations. See 60 FR 66163. The FDIC requests comment on
whether an alternate definition should be considered.
Recordkeeping (Sec. 344.4)
With respect to recordkeeping, the notice of proposed rulemaking
makes several non-substantive changes. Section 344.4 (a) remains
identical in substance to the existing rule. The FDIC proposes to add
headings and paragraphs to make the rule easier to read. A new
paragraph (5) has been added to require banks to retain copies of all
written notifications which are provided. This is not a new
requirement, but is merely a relocation of the recordkeeping
requirement which is found in current Sec. 344.4.
The FDIC proposes to make similar changes to the section of the
rule regarding record maintenance. A new heading for Sec. 344.4(b),
entitled ``Manner of maintenance'' is proposed. Language has been added
which attempts to make it clear that banks do not have to maintain
their records in any particular form or format, as long as the records
are clear, and accurately reflect the information required under
Sec. 344.4(a). This provision is intended to give banks flexibility in
the maintenance of records required by part 344. The FDIC also
recognizes that better and more affordable technology will increase
banks' interest in replacing paper files with electronic data bases and
filing systems. The FDIC has no objection to a bank using an electronic
or automated recordkeeping system. Accordingly, the proposed rule
specifically permits the use of electronic or automated records as long
as the records are easily retrievable and readily available for
inspection and the bank has the capability to reproduce the records in
hard copy form. Further, the FDIC proposes to add language which makes
it clear that a bank using a third party service provider to maintain
the records would meet the rule's recordkeeping requirements.
[[Page 67732]]
Content and Time of Customer Notification (Sec. 344.5)
The FDIC is proposing to revise existing Sec. 344.4 ``Content and
time of customer notification'' in several material respects. The FDIC
has added language to the beginning of Sec. 344.5 to make it clear that
banks may provide the written confirmations required by mail, facsimile
or other electronic means. The SEC recently issued guidance to the
broker/dealer community regarding the delivery of confirmations by
electronic means. SEC Release No. 33-7288, 61 FR 24644 (May 15, 1996).
The FDIC recognizes that banks will want to, and should be permitted
to, use new confirmation delivery systems as technology advances. In
appropriate situations, a bank may satisfy the ``written'' notification
requirement through electronic communications. Where a customer has a
facsimile machine, a bank may fulfill its notification delivery
requirement by sending the notification by facsimile transmission.
Similarly, consistent with SEC guidance a bank may satisfy the
notification delivery requirement by other electronic communications
when the parties agree to use electronic instead of hard-copy
notifications; the parties have the ability to print or download the
notification; the recipient affirms or rejects the trade through
electronic notification; the system cannot automatically delete the
electronic notification; and both parties have the capacity to receive
electronic messages. The FDIC will consider granting banks permission
to use electronic confirmations in other situations depending upon
advances in technology and other regulatory developments.
In proposed Sec. 344.5(a)(1) the FDIC has added clarifying language
regarding the use of broker/dealer confirmations to satisfy the written
notification requirements. There has been some confusion regarding
direct mailing of broker/dealer confirmations to bank customers. The
FDIC has added language which would make it clear that banks have the
option of either (1) having a broker/dealer executing a transaction for
the bank to send a confirmation directly to the bank's customer or (2)
choosing to forward a copy of the broker/dealer confirmation to the
bank customer when it is received. The FDIC believes banks should have
the option of directing a broker/dealer to send a confirmation directly
to the bank's customer as this will improve bank service by
accelerating the delivery of confirmations to its customer. Banks using
this option are ultimately responsible for the timely delivery of
confirmations as well as accurate disclosure of all information
required therein.
Another significant change in proposed Sec. 344.5(a)(1) is the
shortening of the timeframe banks have for forwarding broker/dealer
confirmations to customers. Under existing Sec. 344.4, banks are
required to forward a broker/dealer's confirmation within five business
days of receipt. With the settlement period being shortened to T+3, see
proposed Sec. 344.7, and general improvement in communications, the
FDIC believes that shortening the timeframe for banks sending out
broker/dealer confirmations is justified. The proposed rule requires
banks to send broker/dealer confirmations within one business day of
receipt.
With respect to disclosure of other remuneration, the FDIC is
adding clarifying language to proposed Sec. 344.5(a)(2). Even when
banks use a broker/dealer confirmation, they must provide a statement
regarding the amount of any remuneration the bank will receive from the
customer or any other source in connection with the transaction. There
are certain exceptions--where there is a written agreement between the
bank and the customer, in government and municipal securities
transactions where the bank acts as a dealer, and in mutual fund
transactions where the customer receives a current prospectus. Proposed
paragraph (a)(2) is being revised to make it consistent with the
remuneration disclosure requirements found in paragraph (b)(6).
With respect to the content of the written notification issued by a
bank, the first seven requirements under the proposed rule are
virtually identical to the existing rule. Sec. 344.4(b)(1)-(7). The
FDIC has added new language to proposed paragraph (b)(6) regarding the
exceptions from the disclosure of remuneration requirement for mutual
fund transactions. Banks are not required to provide a statement
regarding the source and amount of other remuneration if the bank
provides the customer with a current prospectus which discloses all
current fees, loads and expenses at or before completion of the
transaction. This exception is consistent with current securities
industry practice which is based on a 1979 SEC No Action Letter. See
Letter to the Investment Company Institute, reprinted in [1979 Transfer
Binder] Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The FDIC
believes adding this language to the text of the regulation will
provide clearer guidance to banks, their counsel and examiners in this
area.
The FDIC is proposing to add five confirmation disclosure
requirements for debt security transactions. See proposed
Sec. 344.5(b)(8)-(12). Paragraphs (b)(8)-(11) address yield information
disclosure, while paragraph (b)(12) requires disclosure that a debt
security has not been rated by a nationally recognized statistical
rating organization, if that is the case. These requirements are
consistent with those of the SEC's confirmation rule, Rule 10b-10. See
17 CFR 240.10b-10(a)(2)(i)(D).
Notification By Agreement; Alternative Forms and Times of Notification
(Sec. 344.6)
In addition to the notification requirements in proposed
Sec. 344.5, the regulation authorizes alternative forms and times of
notification under Sec. 344.6 for certain specific types of accounts.
These are: (1) Accounts in which the bank exercises investment
discretion in other than an agency capacity; (2) accounts in which the
bank exercises investment discretion in an agency capacity; (3) cash
management sweep accounts; (4) transactions for a collective investment
fund account; and (5) transactions for a periodic plan account. The
proposed rule makes very minor changes to the current Sec. 344.5. The
proposed rule revises the name of the section and adds headings in an
effort to eliminate confusion and enhance readability. The one major
change is the addition of a subsection addressing the notification
requirements for cash management sweep accounts.
Under proposed Sec. 344.6(a) a bank and its customer can agree, in
writing, to a different arrangement as to the time and content of
written notification to be received. This provision may be of benefit
to both banks and their customers in that it permits bank customers to
opt for periodic statements--monthly or quarterly--if they do not
desire to receive confirmations within 3 days of the transaction. Banks
may benefit by not having to produce as many confirmations for the same
account and/or not having to produce confirmations as quickly. The FDIC
would like to receive comment regarding the typical written
notification timeframes in standard bank account documents. The FDIC
would like to know if bank customers who sign bank account agreements
providing for alternate notification arrangements are aware of their
right to receive written notifications in as little as 3 days. Comment
is specifically requested as to
[[Page 67733]]
whether the FDIC should require banks to provide more disclosure to its
customers regarding when they are entitled to receive written
notifications. Commenters who support requiring additional disclosures
by banks should provide specific examples of the types or forms of
disclosure that are, or should be, made.
The FDIC proposes to add a new paragraph (d) to Sec. 344.6 to
address the notification requirements for cash management sweep
accounts. The FDIC believes that banks offering cash management sweep
accounts should provide notification similar to that provided by
registered broker/dealers offering similar services. As discussed under
Sec. 344.3, the FDIC has proposed a new definition ``cash management
sweep accounts''. Section 344.6(d) in the proposed rule provides the
timeframe for notification for cash management sweep accounts. The
proposed rule clarifies that, with respect to cash management sweep
accounts, the time for notification is each month in which a purchase
or sale of securities takes place in the customer's account and not
less than once every 3 months if there are no securities transactions
in the account. Under the SEC's Rule 10b-10, broker/dealers must
provide a confirmation after the end of each monthly period for
transactions in money market mutual funds. See 17 CFR 240.10b-10(b)(2).
As discussed above, Sec. 344.6(d) does not control the notification
requirements for cash management sweep accounts which sweep idle funds
into repurchase agreements on government securities. Confirmation
requirements for sweeps into repurchase agreements on government
securities are subject to the Government Securities Act of 1986 and the
Treasury Department regulations thereunder. The Treasury Department
regulations normally require next day confirmations on sweeps into hold
in custody repurchase agreements on government securities.
Under proposed Sec. 344.6(f) the FDIC is proposing to revise the
time frame for providing confirmations for periodic plan accounts. The
FDIC proposes to loosen the confirmation requirements for periodic
plans from ``as soon as possible'' to ``not less than once every three
months''. The FDIC believes that this timeframe is consistent with
current industry practice and the SEC's notification requirements. This
timeframe also will serve to reduce unnecessary regulatory burden.
Settlement of Securities Transactions (Sec. 344.7)
The FDIC's ANPR requested comment on the need for, and effect of,
adopting the T+3 securities settlement requirement for banks. The FDIC
was considering whether part 344 should adopt a provision which tracks
the SEC's securities settlement rule or whether part 344 should merely
cross reference the SEC's rule. We note that the FRB's proposal would
have required banks to comply with the standard settlement cycle
observed by the United States securities industry.5 While the
cross referencing of the SEC's settlement rule would provide uniformity
with the securities industry and avoid the time consuming task of the
FDIC amending part 344 when the SEC makes material changes to their
rule, the rule would not be clear on its face as to the settlement
requirements expected of banks. In addition, cross referencing would
require many small banks to have access to the SEC's rules and be aware
of current SEC interpretations of such rules. The notice of proposed
rulemaking sets forth a new section, Sec. 344.7, with a T+3 settlement
rule which tracks the SEC's settlement rule.6
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\5\ The text of the FRB's proposal is as follows: ``Settlement
of securities transactions. All contracts for the purchase or sale
of a security shall provide for completion of the transaction within
the number of business days in the standard settlement cycle for the
security followed by registered broker/dealers in the United States
unless otherwise agreed to by the parties at the time of the
transaction.'' See 60 FR 66764.
\6\ See Securities Exchange Act of 1934 Rule 15c6-1, 17 CFR
240.15c6-1; 58 FR 52891 (Oct. 13, 1993); 60 FR 26604 (May 17, 1995)
(amendments to the rule).
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Securities Trading Policies and Procedures (Sec. 344.8)
In the notice of proposed rulemaking the FDIC proposes to split the
existing Sec. 344.6 ``Securities trading policies and procedures'' in
two, separating the trading policies and procedures from the bank
personnel securities trading reporting requirements. New Sec. 344.8
would retain virtually unchanged paragraphs (a), (b) and (c) of the
existing Sec. 344.6 addressing orders and execution of trades, the
equitable allocation of securities and prices for accounts and the
crossing of buy and sell orders. The one substantive change to be found
in the proposal addresses the separation of order and execution
functions from the traditional back office clearing functions. See
proposed Sec. 344.8(a)(2). The FRB proposal raised this issue and the
FDIC believes, based on the recent highly publicized cases involving a
lack of internal controls for securities and commodities trading, that
such a provision is appropriate. The proposed rulemaking adds a new
provision which would require banks to adopt written policies and
procedures with separate supervisory procedures and reporting lines for
back office functions.
Personal Securities Trading Reporting by Directors, Officers and
Employees (Sec. 344.9)
The FDIC proposes to create a new Sec. 344.9 addressing personal
securities trading reporting by bank personnel. The FDIC believes that
a separate section is warranted. The FDIC proposes to relocate the
substance of paragraph (d) of existing Sec. 344.6 to new Sec. 344.9. In
addition, the FDIC is proposing to add two new paragraphs: one which
requires certain bank directors to report personal securities trading
and the other which identifies an alternate report which bank personnel
subject to the reporting requirement can use. New headings have been
added to identify more clearly the requirements of the section.
There are two substantive changes proposed to new Sec. 344.9. The
first substantive change proposed is to expand the scope of the
regulation to cover certain bank directors. The existing regulation
only applies to bank officers and employees even though bank directors
may be involved in making investment recommendations or decisions for
customer accounts. The proposed paragraph (b) would require those bank
directors who are (1) involved in making investment recommendations or
decisions for customer accounts or (2) participate in the determination
of such recommendations or decisions to provide the same quarterly
reports on personal securities trading which bank officers and
employees are required to provide. As a point of clarification,
individuals who are both officers and directors of a bank are subject
to the provisions and reporting requirement of paragraph (a).
This proposed reporting requirement would not apply to all bank
directors, nor would it necessarily require reporting by all the bank
directors who serve on the bank's investment or trust committee. For
example, the proposed reporting requirement would not apply to
directors who, through their position on the trust or investment
committee, approve or become aware of the trust department's general
asset allocation recommendations or those directors who approve of or
who know that the bank is recommending specific industries, sectors or
foreign markets. Directors who receive monthly or quarterly reports
detailing past trading activity in specific securities for
[[Page 67734]]
customer accounts wouldn't be subject to the proposed reporting
requirement because such information would not provide such directors
with any advantage for personal trading. For this reason the FDIC has
left out the provision requiring officers or employees who, in
connection with their duties, obtain information concerning which
securities are being purchased, sold or recommended. The FDIC requests
comment regarding whether this provision should be included in new
paragraph (b).
The proposed reporting requirement in new paragraph (b) would
apply, however, to those directors who actively participate in making
decisions or recommendations with respect to the purchase or sale of
specific securities (both debt and equity) for customer accounts prior
to transactions taking place. Directors who have such information could
possibly use such information to trade for their own gain. The FDIC
would like to remind bank directors, officers and employees that the
use of such information for personal trading is illegal and could
result in significant criminal and regulatory actions against the
individual as well as the bank.
The second substantive change identifies an alternate report for
personal securities trading. The proposed Sec. 344.9(a) and (b)
continue to provide that personal securities trading reports must be
filed with the bank within 10 business days 7 of the end of the
calendar quarter. New paragraph (d) clarifies that a bank director,
officer or employee may fulfill the reporting requirement under
proposed Sec. 344.9 (a) or (b) by providing a copy of the report
required under SEC Rule 17j-1. If a bank acts as an investment adviser
to an investment company registered under the Investment Company Act of
1940, the bank's directors, officers and employees--as ``access
persons''--would be required to comply with and file a personal
securities trading report with the bank. Proposed paragraph (d) makes
it clear that the Rule 17j-1 report, which is more detailed than the
report required under Sec. 344.9, will be accepted by the FDIC in lieu
of filing the Sec. 344.9 report. This proposed change is consistent
with the OCC's interpretative position published as part of their final
rule.
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\7\ The FDIC has added the word ``business'' to the regulation
to make it clear that the personal securities trading reports must
be filed within 10 business, as opposed to calendar, days after the
end of the calendar quarter. This is consistent with past
interpretations and merely serves to clarify existing regulatory
practice.
---------------------------------------------------------------------------
Waivers (Sec. 344.10)
The notice of proposed rulemaking restates the FDIC's existing
waiver provision found in existing Sec. 344.8.
Paperwork Reduction Act
The collections of information contained in this notice of proposed
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collections of information should be
sent to the Office of Management and Budget, Paperwork Reduction
Project (3064-0028), Washington DC 20503, with copies of such comments
to be sent to Steven F. Hanft, Office of the Executive Secretary, Room
F-454, Federal Deposit Insurance Corporation, 550 17th Street, N.W.,
Washington, DC 20429.
The collection of information requirements in this proposed rule
are found in 12 CFR Secs. 344.2(b), 344.4(a), 344.5(a) and (b), 344.8,
and 344.9. The collections consist of recordkeeping requirements,
Secs. 344.2(b) and 344.4(a); the provision of written confirmations,
Secs. 344.5 (a) and (b) and 344.6; the establishment of written
policies and procedures for placing orders and executing trades as well
as back office functions, Sec. 344.8; the reporting of personal
securities trading by certain bank directors, officers and employees,
Sec. 344.9.
The likely respondents/recordkeepers are state nonmember insured
banks.
Estimated average annual burden hours per respondent/recordkeeper:
19.43 hours.
Estimated number of respondents and/or recordkeepers: 5,663 state
nonmember insured banks.
Estimated total annual reporting and recordkeeping burden: 109,818
hours.
Start-up costs to respondents: None.
Records under this part are to be maintained for at least three
years.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA)
(5 U.S.C. 605(b)), the initial regulatory flexibility analysis
otherwise required under section 603 of the RFA (5 U.S.C. 603) is not
required if the head of the agency certifies that the rule will not
have a significant economic impact on a substantial number of small
entities and the agency publishes such certification and a succinct
statement explaining the reasons for such certification in the Federal
Register along with its general notice of proposed rulemaking.
The FDIC hereby certifies that the proposal will not have a
significant economic impact on a substantial number of small entities.
The proposal should result in a net benefit to all banks regardless of
size due to the streamlining and clarifications provided in the
proposed rule, but the economic impact on small banks will not be
significant. Most banks with total assets of under $100 million will
not engage in securities activities in a manner covered by this
regulation. Rather, a small bank typically will use either a registered
broker/dealer who has rented space on the bank's premises in what is
commonly referred to as a ``networking arrangement'' or an
``introducing broker'' who will refer a customer to a dealer that can
effect the desired transaction, both of which situations are outside
the scope of part 344, as proposed.
List of Subjects in 12 CFR Part 344
Banks, Banking, Reporting and recordkeeping requirements,
Securities.
Authority and Issuance
For the reasons set out in the preamble, the FDIC proposes to
revise Part 344 of title 12 of the Code of Federal Regulations to read
as follows:
PART 344--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR
SECURITIES TRANSACTIONS
Sec.
344.1 Purpose and scope.
344.2 Exceptions.
344.3 Definitions.
344.4 Recordkeeping.
344.5 Content and time of notification.
344.6 Notification by agreement; alternative forms and times of
notification.
344.7 Settlement of securities transactions.
344.8 Securities trading policies and procedures.
344.9 Personal securities trading reporting by bank directors,
officers and employees.
344.10 Waivers.
Authority: 12 U.S.C. 1817, 1818 and 1819.
Sec. 344.1 Purpose and scope.
(a) Purpose. The purpose of this part is to ensure that purchasers
of securities in transactions effected by a state nonmember insured
bank (except a District bank) or a foreign bank having an insured
branch are provided adequate information regarding transactions. This
part is also designed to ensure that banks subject to this part
maintain adequate records and controls with respect to the securities
transactions they effect.
(b) Scope; General. Any security transaction effected for a
customer by a bank is subject to this part unless
[[Page 67735]]
excepted by Sec. 344.2. A bank effecting transactions in government
securities is subject to the notification, recordkeeping, and policies
and procedures requirements of this part. This part also applies to
municipal securities transactions by a bank that is not registered as a
``municipal securities dealer'' with the Securities and Exchange
Commission. See 15 U.S.C. 78c(a)(30) and 78o-4.
Sec. 344.2 Exceptions.
(a) A bank effecting securities transactions for customers is not
subject to all or part of this part 344 to the extent that they qualify
for one or more of the following exceptions:
(1) Small number of transactions. The requirements of
Secs. 344.4(a) (2) through (4) and 344.8(a) (1) through (3) do not
apply to a bank effecting an average of fewer than 200 securities
transactions per year for customers over the prior three calendar year
period. The calculation of this average does not include transactions
in government securities.
(2) Government securities. The recordkeeping requirements of
Sec. 344.4 do not apply to banks effecting fewer than 500 government
securities brokerage transactions per year. This exemption does not
apply to government securities dealer transactions by banks.
(3) Municipal securities. This part does not apply to transactions
in municipal securities effected by a bank registered with the
Securities and Exchange Commission as a ``municipal securities dealer''
as defined in title 15 U.S.C. 78c(a)(30). See 15 U.S.C. 78o-4.
(4) Foreign branches. Activities of foreign branches of a bank
shall not be subject to the requirements of this part.
(5) Transactions effected by registered broker/dealers. (i) This
part does not apply to securities transactions effected for a bank
customer by a registered broker/dealer if:
(A) The broker/dealer is fully disclosed to the bank customer; and
(B) The bank customer has a direct contractual agreement with the
broker/dealer.
(ii) This exemption extends to bank arrangements with broker/
dealers which involve bank employees when acting as employees of, and
subject to the supervision of, the registered broker/dealer when
soliciting, recommending, or effecting securities transactions.
(b) Safe and sound operations. Notwithstanding this section, every
bank effecting securities transactions for customers shall maintain,
directly or indirectly, effective systems of records and controls
regarding their customer securities transactions to ensure safe and
sound operations. The records and systems maintained must clearly and
accurately reflect the information required under this part and provide
an adequate basis for an audit.
Sec. 344.3 Definitions.
(a) Asset-backed security means a security that is serviced
primarily by the cash flows of a discrete pool of receivables or other
financial assets, either fixed or revolving, that by their terms
convert into cash within a finite time period plus any rights or other
assets designed to assure the servicing or timely distribution of
proceeds to the security holders.
(b) Bank means a state nonmember insured bank (except a District
bank) or a foreign bank having an insured branch.
(c) Cash management sweep account means a prearranged, automatic
transfer of funds above a certain dollar level from a deposit account
to purchase a security or securities, or any prearranged, automatic
redemption or sale of a security or securities when a deposit account
drops below a certain level with the proceeds being transferred into a
deposit account.
(d) Collective investment fund means funds held by a bank as
fiduciary and, consistent with local law, invested collectively:
(1) In a common trust fund maintained by such bank exclusively for
the collective investment and reinvestment of monies contributed
thereto by the bank in its capacity as trustee, executor,
administrator, guardian, or custodian under the Uniform Gifts to Minors
Act; or
(2) In a fund consisting solely of assets of retirement, pension,
profit sharing, stock bonus or similar trusts which are exempt from
Federal income taxation under the Internal Revenue Code (Title 26 of
the United States Code).
(e) Completion of the transaction means:
(1) For purchase transactions, the time when the customer pays the
bank any part of the purchase price (or the time when the bank makes
the book-entry for any part of the purchase price, if applicable),
however, if the customer pays for the security prior to the time
payment is requested or becomes due, then the transaction shall be
completed when the bank transfers the security into the account of the
customer; and
(2) For sale transactions, the time when the bank transfers the
security out of the account of the customer or, if the security is not
in the bank's custody, then the time when the security is delivered to
the bank, however, if the customer delivers the security to the bank
prior to the time delivery is requested or becomes due then the
transaction shall be completed when the bank makes payment into the
account of the customer.
(f) Crossing of buy and sell orders means a security transaction in
which the same bank acts as agent for both the buyer and the seller.
(g) Customer means any person or account, including any agency,
trust, estate, guardianship, or other fiduciary account for which a
bank makes or participates in making the purchase or sale of
securities, but does not include a person or account having a direct,
contractual agreement with a fully disclosed broker/dealer, broker,
dealer, dealer bank or issuer of the securities that are the subject of
the transaction.
(h) Debt security means any security, such as a bond, debenture,
note, or any other similar instrument that evidences a liability of the
issuer (including any security of this type that is convertible into
stock or a similar security) and fractional or participation interests
in one or more of any of the foregoing; provided, however, that
securities issued by an investment company registered under the
Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq., shall not be
included in this definition.
(i) Government security means:
(1) A security that is a direct obligation of, or obligation
guaranteed as to principal and interest by, the United States;
(2) A security that is issued or guaranteed by a corporation in
which the United States has a direct or indirect interest and which is
designated by the Secretary of the Treasury for exemption as necessary
or appropriate in the public interest or for the protection of
investors;
(3) A security issued or guaranteed as to principal and interest by
any corporation whose securities are designated, by statute
specifically naming the corporation, to constitute exempt securities
within the meaning of the laws administered by the Securities and
Exchange Commission; or
(4) Any put, call, straddle, option, or privilege on a security
described in paragraph (i) (1), (2), or (3) of this section other than
a put, call, straddle, option, or privilege that is traded on one or
more national securities exchanges, or for which quotations are
disseminated through an automated quotation system operated by a
registered securities association.
[[Page 67736]]
(j) Investment discretion means that, with respect to an account, a
bank directly or indirectly:
(1) Is authorized to determine what securities or other property
shall be purchased or sold by or for the account; or
(2) Makes decisions as to what securities or other property shall
be purchased or sold by or for the account even though some other
person may have responsibility for these investment decisions.
(k) Municipal security means a security which is a direct
obligation of, or an obligation guaranteed as to principal or interest
by, a State or any political subdivision, or any agency or
instrumentality of a State or any political subdivision, or any
municipal corporate instrumentality of one or more States or any
security which is an industrial development bond (as defined in section
103(c)(2) of the Internal Revenue Code of 1954) the interest on which
is excludable from gross income under section 103(a)(1) of such Code
if, by reason of the application of paragraph (4) or (6) of section
103(c) of such Code (determined as if paragraphs (4)(A), (5) and (7)
were not included in such section 103(c), paragraph (1) of such section
103(c) does not apply to such security.
(l) Periodic plan means any written authorization for a bank acting
as agent to purchase or sell for a customer a specific security or
securities, in a specific amount (calculated in security units or
dollars) or to the extent of dividends and funds available, at specific
time intervals, and setting forth the commission or charges to be paid
by the customer or the manner of calculating them. Periodic plans
include dividend reinvestment plans, automatic investment plans, and
employee stock purchase plans.
(m) Security means any interest or instrument commonly known as a
security, whether in the nature of debt or equity, including any stock,
bond, note, debenture, evidence of indebtness or any participation in
or right to subscribe to or purchase any of the foregoing. The term
security does not include:
(1) A deposit or share account in a federally or state insured
depository institution;
(2) A loan participation;
(3) A letter of credit or other form of bank indebtness incurred in
the ordinary course of business;
(4) Currency;
(5) Any note, draft, bill of exchange, or bankers acceptance which
has a maturity at the time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof the maturity of
which is likewise limited;
(6) Units of a collective investment fund;
(7) Interests in a variable amount (master) note of a borrower of
prime credit; or
(8) U.S. Savings Bonds.
Sec. 344.4 Recordkeeping.
(a) General rule. A bank effecting securities transactions for
customers shall maintain the following records for at least three
years:
(1) Chronological records. An itemized daily record of each
purchase and sale of securities maintained in chronological order, and
including:
(i) Account or customer name for which each transaction was
effected;
(ii) Description of the securities;
(iii) Unit and aggregate purchase or sale price;
(iv) Trade date; and
(v) Name or other designation of the broker/dealer or other person
from whom the securities were purchased or to whom the securities were
sold;
(2) Account records. Account records for each customer, reflecting:
(i) Purchases and sales of securities;
(ii) Receipts and deliveries of securities;
(iii) Receipts and disbursements of cash; and
(iv) Other debits and credits pertaining to transactions in
securities;
(3) A separate memorandum (order ticket) of each order to purchase
or sell securities (whether executed or cancelled), which shall
include:
(i) The accounts for which the transaction was effected;
(ii) Whether the transaction was a market order, limit order, or
subject to special instructions;
(iii) The time the order was received by the trader or other bank
employee responsible for effecting the transaction;
(iv) The time the order was placed with the broker/dealer, or if
there was no broker/dealer, time the order was executed or cancelled;
(v) The price at which the order was executed; and
(vi) The broker/dealer utilized;
(4) Record of broker/dealers. A record of all broker/dealers
selected by the bank to effect securities transactions and the amount
of commissions paid or allocated to each broker during the calendar
year; and
(5) Notifications. A copy of the written notification required by
Secs. 344.5 and 344.6.
(b) Manner of maintenance. Records may be maintained in whatever
manner, form or format a bank deems appropriate, provided however, the
records required by this section must clearly and accurately reflect
the information required and provide an adequate basis for the audit of
the information. Records may be maintained in hard copy, automated or
electronic form provided the records are easily retrievable, readily
available for inspection, and capable of being reproduced in a hard
copy. A bank may contract with third party service providers, including
broker/dealers, to maintain records required under this part.
Sec. 344.5 Content and time of notification.
Every bank effecting a securities transaction for a customer shall
give, send or have sent, by mail, facsimile or other means of
electronic transmission, to the customer at or before completion of the
transaction one of the types of written notification identified below:
(a) Broker/dealer's confirmations. (1) A copy of the confirmation
of a broker/dealer relating to the securities transaction. A bank may
either have the broker/dealer send the confirmation directly to the
bank's customer or send a copy of the broker/dealer's confirmation to
the customer upon receipt of the confirmation by the bank. If a bank
chooses to send a copy of the broker/dealer's confirmation, it must be
sent within one business day from the bank's receipt of the broker/
dealer's confirmation; and
(2) If the bank is to receive remuneration from the customer or any
other source in connection with the transaction, a statement of the
source and amount of any remuneration to be received if such would be
required under paragraph (b)(6) of this section; or
(b) Written notification. A written notification disclosing:
(1) Name of the bank;
(2) Name of the customer;
(3) Whether the bank is acting as agent for such customer, as agent
for both such customer and some other person, as principal for its own
account, or in any other capacity;
(4) The date and time of execution, or the fact that the time of
execution will be furnished within a reasonable time upon written
request of the customer, and the identity, price, and number of shares
or units (or principal amount in the case of debt securities) of the
security purchased or sold by the customer;
(5) The amount of any remuneration received or to be received,
directly or indirectly, by any broker/dealer from such customer in
connection with the transaction;
(6)(i) The amount of any remuneration received or to be received by
the bank
[[Page 67737]]
from the customer, and the source and amount of any other remuneration
received or to be received by the bank in connection with the
transaction, unless:
(A) Remuneration is determined pursuant to a prior written
agreement between the bank and the customer; or
(B) In the case of government securities and municipal securities,
the bank received the remuneration in other than an agency transaction;
or
(C) In the case of open end investment company securities, the bank
has provided the customer with a current prospectus which discloses all
current fees, loads and expenses at or before completion of the
transaction;
(ii) If the bank elects not to disclose the source and amount of
remuneration it has or will receive from a party other than the
customer pursuant to paragraph (b)(6)(i) (A), (B), or (C) of this
section, the written notification must disclose whether the bank has
received or will receive remuneration from a party other than the
customer, and that the bank will furnish within a reasonable time the
source and amount of this remuneration upon written request of the
customer. This election is not available, however, if, with respect to
a purchase, the bank was participating in a distribution of that
security; or, with respect to a sale, the bank was participating in a
tender offer for that security;
(7) Name of the broker/dealer utilized; or where there is no
broker/dealer, the name of the person from whom the security was
purchased or to whom the security was sold, or a statement that the
bank will furnish this information within a reasonable time upon
written request;
(8) In the case of a transaction in a debt security subject to
redemption before maturity, a statement to the effect that the debt
security may be redeemed in whole or in part before maturity, that the
redemption could affect the yield represented and that additional
information is available upon request;
(9) In the case of a transaction in a debt security effected
exclusively on the basis of a dollar price:
(i) The dollar price at which the transaction was effected; and
(ii) The yield to maturity calculated from the dollar price,
provided however, that this shall not apply to a transaction in a debt
security that either has a maturity date that may be extended by the
issuer thereof, with a variable interest payable thereon, or is an
asset-backed security that represents an interest in or is secured by a
pool of receivables or other financial assets that are subject
continuously to prepayment;
(10) In the case of a transaction in a debt security effected on
the basis of yield:
(i) The yield at which the transaction was effected, including the
percentage amount and its characterization (e.g., current yield, yield
to maturity, or yield to call) and if effected at yield to call, the
type of call, the call date and call price; and
(ii) The dollar price calculated from the yield at which the
transaction was effected; and
(iii) If effected on a basis other than yield to maturity and the
yield to maturity is lower than the represented yield, the yield to
maturity as well as the represented yield; provided however, that this
paragraph (b)(10) shall not apply to a transaction in a debt security
that either has a maturity date that may be extended by the issuer with
a variable interest rate payable thereon, or is an asset-backed
security that represents an interest in or is secured by a pool of
receivables or other financial assets that are subject continuously to
prepayment;
(11) In the case of a transaction in a debt security that is an
asset-backed security, which represents an interest in or is secured by
a pool of receivables or other financial assets that are subject
continuously to prepayment, a statement indicating that the actual
yield of the asset-backed security may vary according to the rate at
which the underlying receivables or other financial assets are prepaid
and a statement of the fact that information concerning the factors
that affect yield (including at a minimum estimated yield, weighted
average life, and the prepayment assumptions underlying yield) will be
furnished upon written request of the customer; and
(12) In the case of a transaction in a debt security, other than a
government security, that the security is unrated by a nationally
recognized statistical rating organization, if that is the case.
Sec. 344.6 Notification by agreement; alternative forms and times of
notification.
A bank may elect to use the following alternative notification
procedures if the transaction is effected for:
(a) Notification by agreement. Accounts (except periodic plans)
where the bank does not exercise investment discretion and the bank and
the customer agree in writing to a different arrangement as to the time
and content of the written notification; provided however, that such
agreement makes clear the customer's right to receive the written
notification pursuant to Sec. 344.5 (a) or (b) at no additional cost to
the customer.
(b) Trust accounts. Accounts (except collective investment funds)
where the bank exercises investment discretion in other than in an
agency capacity, in which instance the bank shall, upon request of the
person having the power to terminate the account or, if there is no
such person, upon the request of any person holding a vested beneficial
interest in such account, give or send to such person the written
notification within a reasonable time. The bank may charge such person
a reasonable fee for providing this information.
(c) Agency accounts. Accounts where the bank exercises investment
discretion in an agency capacity, in which instance:
(1) The bank shall give or send to each customer not less
frequently than once every three months an itemized statement which
shall specify the funds and securities in the custody or possession of
the bank at the end of such period and all debits, credits and
transactions in the customer's accounts during such period; and
(2) If requested by the customer, the bank shall give or send to
each customer within a reasonable time the written notification
described in Sec. 344.5. The bank may charge a reasonable fee for
providing the information described in Sec. 344.5.
(d) Cash management sweep accounts. A bank effecting a securities
transaction for a cash management sweep account shall give or send its
customer a written notification as described in Sec. 344.5 for each
month in which a purchase or sale of a security takes place in the
account and not less than once every three months if there are no
securities transactions in the account.
(e) Collective investment fund accounts. The bank shall at least
annually furnish to the customer a copy of a financial report of the
fund, or provide notice that a copy of such report is available and
will be furnished upon request to each person to whom a regular
periodic accounting would ordinarily be rendered with respect to each
participating account. This report shall be based upon an audit made by
independent public accountants or internal auditors responsible only to
the board of directors of the bank.
(f) Periodic plan accounts. The bank shall give or send to the
customer not less than once every three months a written statement
showing:
(1) The funds and securities in the custody or possession of the
bank;
(2) All service charges and commissions paid by the customer in
connection with the transaction; and
[[Page 67738]]
(3) All other debits and credits of the customer's account involved
in the transaction; provided that upon written request of the customer,
the bank shall give or send the information described in Sec. 344.5,
except that any such information relating to remuneration paid in
connection with the transaction need not be provided to the customer
when the remuneration is paid by a source other than the customer. The
bank may charge a reasonable fee for providing information described in
Sec. 344.5.
Sec. 344.7 Settlement of securities transactions.
(a) A bank shall not effect or enter into a contract for the
purchase or sale of a security (other than an exempted security as
defined in 15 U.S.C. 78c(a)(12), government security, municipal
security, commercial paper, bankers' acceptances, or commercial bills)
that provides for payment of funds and delivery of securities later
than the third business day after the date of the contract unless
otherwise expressly agreed to by the parties at the time of the
transaction.
(b) Paragraphs (a) and (c) of this section shall not apply to
contracts:
(1) For the purchase or sale of limited partnership interests that
are not listed on an exchange or for which quotations are not
disseminated through an automated quotation system of a registered
securities association; or
(2) For the purchase or sale of securities that the Securities and
Exchange Commission (SEC) may from time to time, taking into account
then existing market practices, exempt by order from the requirements
of paragraph (a) of SEC Rule 15c6-1, 17 CFR 240.15c6-1(a), either
unconditionally or on specified terms and conditions, if the SEC
determines that an exemption is consistent with the public interest and
the protection of investors.
(c) Paragraph (a) of this section shall not apply to contracts for
the sale for cash of securities that are priced after 4:30 p.m. Eastern
time on the date the securities are priced and that are sold by an
issuer to an underwriter pursuant to a firm commitment underwritten
offering registered under the Securities Act of 1933, 15 U.S.C. 77a et
seq., or sold to an initial purchaser by a bank participating in the
offering. A bank shall not effect or enter into a contract for the
purchase or sale of the securities that provides for payment of funds
and delivery of securities later than the fourth business day after the
date of the contract unless otherwise expressly agreed to by the
parties at the time of the transaction.
(d) For purposes of paragraphs (a) and (c) of this section, the
parties to a contract shall be deemed to have expressly agreed to an
alternate date for payment of funds and delivery of securities at the
time of the transaction for a contract for the sale for cash of
securities pursuant to a firm commitment offering if the managing
underwriter and the issuer have agreed to the date for all securities
sold pursuant to the offering and the parties to the contract have not
expressly agreed to another date for payment of funds and delivery of
securities at the time of the transaction.
Sec. 344.8 Securities trading policies and procedures.
(a) Policies and procedures. Every bank effecting securities
transactions for customers shall establish written policies and
procedures providing:
(1) Assignment of responsibility for supervision of all officers or
employees who:
(i) Transmit orders to or place orders with broker/dealers; or
(ii) Execute transactions in securities for customers; and
(2) Assignment of responsibility for supervision and reporting,
separate from those in paragraph (a)(1) of this section, with respect
to all officers or employees who process orders for notification or
settlement purposes, or perform other back office functions with
respect to securities transactions effected for customers; and
(3) For the fair and equitable allocation of securities and prices
to accounts when orders for the same security are received at
approximately the same time and are placed for execution either
individually or in combination; and
(4) Where applicable, and where permissible under local law, for
the crossing of buy and sell orders on a fair and equitable basis to
the parties to the transaction.
Sec. 344.9 Personal securities trading reporting by bank directors,
officers and employees.
(a) Officers and employees subject to reporting. Bank officers and
employees who:
(1) Make investment recommendations or decisions for the accounts
of customers;
(2) Participate in the determination of such recommendations or
decisions; or
(3) In connection with their duties, obtain information concerning
which securities are being purchased or sold or recommend such action,
must report to the bank, within ten business days after the end of the
calendar quarter, all transactions in securities made by them or on
their behalf, either at the bank or elsewhere in which they have a
beneficial interest. The report shall identify the securities purchased
or sold and indicate the dates of the transactions and whether the
transactions were purchases or sales.
(b) Directors subject to reporting. Bank directors who:
(1) Make investment recommendations or decisions for the accounts
of customers; or
(2) Participate in the determination of such recommendations or
decisions must report to the bank, within ten business days after the
end of the calendar quarter, all transactions in securities made by
them or on their behalf, either at the bank or elsewhere in which they
have a beneficial interest. The report shall identify the securities
purchased or sold and indicate the dates of the transactions and
whether the transactions were purchases or sales.
(c) Exempt transactions. Excluded from this reporting requirement
are:
(1) Transactions for the benefit of the director, officer or
employee over which the director, officer or employee has no direct or
indirect influence or control;
(2) Transactions in mutual fund shares;
(3) Transactions in government securities; and
(4) All transactions involving in the aggregate $10,000 or less
during the calendar quarter.
(d) Alternative report. Where a bank acts as an investment adviser
to an investment company registered under the Investment Company Act of
1940, the bank's directors, officers and employees may fulfill their
reporting requirement under paragraph (a) or (b) of this section by
filing with the bank the ``access persons'' personal securities trading
report required by (SEC) Rule 17j-1, 17 CFR 270.17j-1.
Sec. 344.10 Waivers.
The Board of Directors of the FDIC, in its discretion, may waive
for good cause all or any part of this part 344.
Dated at Washington, D.C., this 11th day of December, 1996.
By Order of the Board of Directors.
Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-32275 Filed 12-23-96; 8:45 am]
BILLING CODE 6714-01-P
