[Federal Register Volume 60, Number 247 (Tuesday, December 26, 1995)]
[Proposed Rules]
[Pages 66759-66764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31234]
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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. 60, No. 247 / Tuesday, December 26, 1995 /
Proposed Rules
[[Page 66759]]
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Regulation H; Docket No. R-0909]
Membership of State Banking Institutions in the Federal Reserve
System; Recordkeeping and Confirmation of Certain Securities
Transactions Effected by State Member Banks
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comments.
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SUMMARY: The Board of Governors of the Federal Reserve System is
proposing amendments to Regulation H pertaining to the recordkeeping
and confirmation of certain securities transactions. The amendments
would accommodate developments in the securities markets by adding
certain yield-related confirmation disclosure requirements for
transactions involving debt and asset-backed securities effected by
State member banks for customers, and providing for three day
settlement of those transactions. The proposed amendments also would
clarify that State member banks that effect de minimis government
securities brokerage transactions and are exempt from registration
under Department of the Treasury regulations, also are exempt from
Regulation H. Finally, the proposed amendments address the minimum
recordkeeping requirements for State member banks exempt from the
paragraph, and include several new definitions and various language
edits.
DATES: Comments must be submitted on or before February 28, 1996.
ADDRESSES: Comments should refer to Docket No. R-0909, and may be
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments also may be delivered to Room B-2222 of
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, and to
the guard station in the Eccles Building courtyard on 20th Street, NW
(between Constitution Avenue and C Street) at any time. Comments
received will be available for inspection in room MP-500 of the Martin
Building between 9:00 a.m. and 5:00 p.m. weekdays, except as provided
in 12 CFR 261.8(a) of the Board's rules regarding availability of
information.
FOR FURTHER INFORMATION CONTACT: Angela Desmond, Senior Counsel, or
Susan Meyers, Senior Securities Analyst, (202) 452-2781. For users of
Telecommunications Device for the Deaf (TTD), please contact Dorothea
Thompson, (202/452-3544), Board of Governors of the Federal Reserve
System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: Section 208.8(k) of Regulation H, 12 CFR
part 208, was adopted in 1979 to ensure that banks effecting securities
transactions for customers conform to securities industry practices
with respect to the maintenance of records, and the content and timing
of confirmations and account statements.1 Since that time, a
number of market and regulatory changes have occurred that have
relevance to these provisions. As a result, the Board has determined
that the recordkeeping and notification requirements of Regulation H
should be amended to ensure that procedures followed by State member
banks continue to conform with SEC and Department of the Treasury
regulations, and are consistent with principles of safe and sound
banking practices. For purposes of organization, the contents of
Sec. 208.8(k) would be moved into a new Sec. 208.24.
\1\ 44 FR 43258 (July 24, 1979).
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Comments are requested on the proposed amendments as described in
more detail below. The proposed amendments are limited to new
Sec. 208.24 (current Sec. 208.8(k)) of Regulation H and are not meant
to obviate the need for the general review of the whole regulation
scheduled for the latter part of 1996.2 Accordingly, comments
pertaining to other provisions of Regulation H should be withheld until
notice of a general review is announced.
\2\ The OCC and the FDIC are considering similar amendments to
their versions of the regulation, 12 CFR Part 12, 44 FR 43252 (July
24, 1979) and 12 CFR Part 344, 44 FR 43261 (July 24, 1979)
respectively. Consideration of the amendments now will ensure
continued consistency among the three regulations and obtain parity
with securities industry practices.
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Summary of Proposed Amendments
The provisions of Sec. 208.8(k) would be moved to a new section
(Sec. 208.24) at the end of subpart A of Regulation H and paragraph (k)
of Sec. 208.8 would be reserved.
Sec. 208.24(a) Definitions.
The draft amendments would add definitions of: asset-backed
security, completion of the transaction, crossing of buy and sell
orders, debt security, government security and municipal security. In
general, the new definitions are based on definitions contained in the
Securities Exchange Act, 15 U.S.C. 78a et seq., or in the SEC's
confirmation rule 10b-10, 17 CFR 240.10b-10, and are necessary for
applying the proposed confirmation disclosure and the three day
settlement requirements. Finally, the term dealer bank in the
definition of customer would be replaced with the term municipal
securities broker or dealer to clarify that a bank acting as a
municipal securities broker is not a customer for purposes of
Sec. 208.24 of Regulation H.
Sec. 208.24(b) Recordkeeping.
New language would be added to clarify that Sec. 208.24 applies to
government securities transactions effected for customers by State
member banks and to municipal securities transactions effected by State
member banks that are not registered as municipal securities dealers.
The amendments also would relocate all confirmation recordkeeping
requirements into this section. Explanatory language at the end of the
section would be moved to the first paragraph to simplify the section.
Sec. 208.24(c) Content and Time of Notification.
The amendments would rename the section to clarify its subject
matter. Substantively, the amendments would delete the old five
business day requirement for confirmation delivery in former Sec. 208.8
(k)(3) and (k)(4) and provide that confirmations be given or sent to
customers ``at or by completion of the transaction,'' defined as the
payment and delivery of the securities in Sec. 208.24(a).
In addition, the proposed amendments would require
[[Page 66760]]
confirmations to: (i) contain a legend when the security is callable
prior to maturity indicating that an early redemption could affect the
yield stated on the confirmation and offering additional information on
request (proposed Sec. 208.24(c)(2)(viii); (ii) disclose the yield and/
or resulting dollar price of transactions involving debt securities and
asset-backed securities (proposed Sec. 208.24(c)(2) (ix) and (x)); and,
(iii) indicate when a debt security, other than a government security,
is unrated by a nationally recognized statistical rating organization
(proposed Sec. 208.24(c)(2)(xi)). The proposed disclosures would
conform bank confirmations with disclosures now required of broker
dealers under SEC rule 10b-10. They also conform to longstanding
practice in the municipal securities industry.
In proposing amendments to this section, the Board is mindful of
the securities regulators' determinations that these confirmation
disclosures constitute material information necessary to describe the
securities or to identify the transaction. Comment is requested
concerning the extent to which banks already are making the proposed
confirmation disclosures to customers. Comment also is requested
whether it would be preferable to incorporate SEC rules 10b-10, 17a-3
and 17a-4 by reference for State member banks to refer to, rather than
specify discrete items of confirmation disclosure in the regulation.
Finally, Sec. 208.24 (c)(v)-(c)(vii) require State member banks to
disclose in agency transactions the name of any broker dealer utilized,
the amount of such broker dealer's commission, and the amount of
commission or other remuneration being received by the bank. Some have
argued that these requirements have an anticompetitive effect. Comment
is requested whether this provision is inappropriately anticompetitive,
and, if so, how a bank should disclose its remuneration and the
remuneration going to other parties on agency transactions.
Sec. 208.24(d) Notification by agreement; alternative forms and times.
Section 208.24(d)(current section 208.8(k)(4)) would be renamed to
indicate that it deals with alternative arrangements under which
customers receive notifications of securities transactions effected by
State member banks. Other than conforming language edits, a substantive
change would be made to Sec. 208.24(d)(v), pertaining to notifications
of transactions in periodic plans, to require that notification be
provided to customers ``not less than every three months'' rather than
the current requirement of ``as soon as possible after each
transaction.'' This would conform the section with SEC rule 10b-10
(notifications required at least quarterly) while creating flexibility
in scheduling notifications in periodic plans.
Sec. 208.24(e) Securities Trading Policies and Procedures.
A new Sec. 208.24(e)(1)(iii) would be added to require State member
banks to establish supervisory procedures and reporting lines for back
office personnel that are separate from those established to oversee
personnel accepting orders and effecting transactions under Sec. 208.24
(e)(1)(i) and (e)(1)(ii).
Sec. 208.24(f) Settlement of Securities Transactions.
Proposed Sec. 208.24(f), on settlement of securities transactions,
would require State member banks to provide for three day (T+3)
settlement for securities transactions effected for customers unless
the parties agree to a different settlement date at the time of the
transaction. The requirement would apply to transactions in securities
that fall under SEC rule 15c6-1, 17 CFR 240.15c6-1, for broker
dealers.3
\3\ Exceptions or other relief, and changes in the standard
settlement cycle adopted by the SEC under rule 15c6-1 also would
apply to State member banks. MSRB rules require bank dealers to
settle municipal securities transactions by T+3.
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The Board requests comment whether the proposed section is needed
for banks to meet T+3 settlement, where appropriate, of transactions
effected for customers. Finally, if the Board determines to adopt the
new section, comment is requested whether banks prefer that Regulation
H incorporate SEC rule 15c6-1 by reference rather than the proposed
language.
Sec. 208.24(g) Exceptions.
The exceptions previously found in current Sec. 208.8(k)(6) would
be contained in Sec. 208.24(g). A new Sec. 208.24(g)(2) would clarify
that State member banks that effect up to 500 government securities
brokerage transactions and are exempt from registration under
Department of the Treasury regulation 401.3(a)(2)(i), 17 CFR
401.3(a)(2), also are exempt from Sec. 208.24. This exemption would not
be available if a bank has filed notice or is required to file notice
indicating that it acts as a government securities broker or dealer.
Staff at the Bureau of Public Debt, which is the organization within
the Department of the Treasury that is responsible for administering 17
CFR 404.4(a), on recordkeeping by government securities brokers and
dealers that are financial institutions, has advised that they are
considering amending this regulation to clarify any ambiguity with
respect to the recordkeeping requirements for financial institutions
that conduct government securities transactions resulting from the
interplay of the regulation with the recordkeeping requirements of
Regulation H.
Sec. 208.24(h) Safe and Sound Operations.
Finally, a new Sec. 208.24(h), on safe and sound operations, would
be added stating that principles of safety and soundness require a bank
to maintain effective systems of records and controls regarding
customer securities transactions that reflect accurate information and
are sufficient to provide an adequate basis for an audit of the
information. This provision is consistent with the longstanding
interpretation and would clarify what is expected of banks that qualify
for an exception from Sec. 208.24(h).
Regulatory Flexibility Act
The Board believes there will be no significant economic impact on
a substantial number of small entities if this proposal is adopted.
Comments are invited on this statement.
Paperwork Reduction Act
In accordance with Sec. 3506 of the Paperwork Reduction Act of 1995
(44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed the
proposed rule under the authority delegated to the Board by the Office
of Management and Budget. Comments on the collections of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0196), Washington, DC 20503, with copies of
such comments to be sent to Mary M. McLaughlin, Federal Reserve Board
Clearance Officer, Division of Research and Statistics, Mail Stop 97,
Board of Governors of the Federal Reserve System, Washington, DC 20551.
The collection of information requirements in this proposed
regulation are found in 12 CFR 208.8(k). This information is required
to evidence compliance with the requirements of section 208.8(k) of
Regulation H. The respondents are for-profit financial institutions.
Records must be retained for three years.
The Federal Reserve may not conduct or sponsor, and an organization
is not required to respond to, this information collection unless it
displays a currently valid OMB control number. The OMB control number
is 7100-0196.
[[Page 66761]]
The proposed amendments would provide for only a minor addition in
disclosure practices of state member banks, would not increase the
banks' reporting requirements to the Federal Reserve, and would have a
negligible effect on respondent burden. The estimated burden is 3
minutes per response. There are 1,214 respondents and the number of
their recordkeeping and notification occurrences varies with the amount
and type of securities transactions. The total annual recordkeeping and
disclosure burden for these respondents is estimated to be 165,520
hours. Based on an hourly cost of $20, the annual cost to the public is
estimated to be $3,310,400.
Because the records would be maintained at state member banks and
the notices are not provided to the Federal Reserve, no issue of
confidentiality under the Freedom of Information Act arises.
Comments are invited on: (a) whether the proposed collection of
information is necessary for the proper performance of the Federal
Reserve's functions; including whether the information has practical
utility; (b) the accuracy of the Federal Reserve's estimate of the
burden of the proposed information collection, including the cost of
compliance; (c) ways to enhance the quality, utility, and clarity of
the information to be collected; and (d) ways to minimize the burden of
information collection on respondents, including through the use of
automated collection techniques or other forms of information
technology.
List of Subjects in 12 CFR Part 208
Accounting, Agriculture, Banks, banking, State member banks,
Confidential business information, Crime, Currency, Federal Reserve
System, Flood insurance, Mortgages, Reporting and recordkeeping
requirements, Securities.
For reasons set out in the preamble, the Board proposes to amend 12
CFR Part 208 as set forth below:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for Part 208 continues to read as
follows:
Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, 461,
481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105,
3310, 3331-3351 and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g),
781(i), 78o-4(c)(5), 78q, 78q-1 and 78w; 31 U.S.C. 5318; 42 U.S.C.
4012a, 4101a, 4104b, 4106 and 4128.
Sec. 208.8 [Amended]
2. In Sec. 208.8 paragraph (k) is removed and reserved.
3. A new Sec. 208.24 is added at the end of subpart A to read as
follows:
Sec. 208.24 Recordkeeping and confirmation of certain securities
transactions effected by State member banks.
(a) Definitions. For purposes of this Sec. 208.24:
Asset-backed security shall mean 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.
Collective investment fund shall means funds held by a State member
bank as fiduciary and, consistent with local law, invested collectively
as follows:
(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).
Completion of the transaction effected by or through a state member
bank shall mean:
(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 banks makes payment into the
account of the customer.
Crossing of buy and sell orders shall mean a security transaction
in which the same bank acts as agent for both the buyer and the seller.
Customer shall mean any person or account, including any agency,
trust, estate, guardianship, committee or other fiduciary account, for
which a State member bank effects or participates in effecting the
purchase or sale of securities, but shall not include a broker, dealer,
bank acting as a broker or dealer bank or issuer of the securities
which are the subject of the transactions.
Debt security as used in paragraph (c) of this section shall mean
any security, such as a bond, debenture, note or any other similar
instrument which evidences a liability of the issuer (including any
security of this type that is convertible into stock or 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.
Exercise investment discretion with respect to an account shall
mean if the State member bank, directly or indirectly, is authorized to
determine what securities or other property shall be purchased or sold
by or for the account, or 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 such investment
decisions.
Government security shall mean:
(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 Exchange
Commission; or
(4) Any put, call, straddle, option, or privilege on a security as
described in paragraph (1), (2), or (3) of this definition 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
though an
[[Page 66762]]
automated quotation system operated by a registered securities
association.
Municipal security shall mean a security which is a direct
obligation of, or obligation guaranteed as to principal or interest by,
a State or any political subdivision thereof, or any agency or
instrumentality of a State or any political subdivision thereof, or any
municipal corporate instrumentality of one or more States, or any
security which is an industrial development bond (as defined in
Sec. 103(c)(2) of the Internal Revenue Code of 1954) the interest on
which is excludable from gross income under Sec. 103(a)(1) of such Code
if, by reason of the application of paragraph (4) or (6) of Sec. 103(c)
of such Code (determined as if paragraphs (4)(A), (5) and (7) were not
included in such Sec. 103(c), paragraph (1) of such Sec. 103(c) does
not apply to such security.
Periodic plan (including dividend reinvestment plans, automatic
investment plans and employee stock purchase plans) means any written
authorization for a State member bank acting as agent to purchase or
sell for a customer a specific security or securities, in specific
amounts (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 in
connection therewith or the manner of calculating them.
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 indebtedness 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 indebtedness 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.
(b) Recordkeeping. Except as provided in paragraph (g) of this
section, every State member bank effecting securities transactions for
customers, including transactions in government securities, and
municipal securities transactions by banks not subject to registration
as a municipal securities dealers shall maintain the following records
with respect to such transactions for at least three years. Nothing
contained in this section shall require a bank to maintain the records
required by this paragraph rule in any given manner, provided that the
information required to be shown is clearly and accurately reflected
and provides an adequate basis for the audit of such information.
(1) Chronological records of original entry containing an itemized
daily record of all purchases and sales of securities. The records of
original entry shall show the account or customer for which each such
transaction was effected, the description of the securities, the unit
and aggregate purchase or sale price (if any), the trade date and the
name or other designation of the broker/dealer or other person from
whom purchased or to whom sold;
(2) Account records for each customer which shall reflect all
purchases and sales of securities, all receipts and deliveries of
securities, and all receipts and disbursements of cash with respect to
transactions in securities for such account and all 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 account(s) 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, the time the order was executed or
canceled;
(v) The price at which the order was executed; and
(vi) The broker/dealer utilized;
(4) A record of all broker/dealers selected by the bank to effect
securities transactions and the amount of commissions paid or allocated
to each such broker during the calendar year; and
(5) A copy of the written notification required by paragraphs (c)
and (d) of this section.
(c) Content and time of notification. Every State member bank
effecting a securities transaction for a customer at or before
completion of the transaction shall give or send to such customer
either of the following types of notifications:
(1) A copy of the confirmation of a broker/dealer relating to the
securities transaction; and if the bank is to receive remuneration from
the customer or any other source in connection with the transaction,
and the remuneration is not determined pursuant to a prior written
agreement between the bank and the customer, a statement of the source
and the amount of any remuneration to be received; or
(2) A written notification disclosing:
(i) The name of the bank;
(ii) The name of the customer;
(iii) 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;
(iv) The date of execution and a statement that the time of
execution will be furnished within a reasonable time upon written
request of such customer, and the identity, price and number of shares
or units (or principal amount in the case of debt securities) of such
security purchased or sold by such a customer;
(v) 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;
(vi) The amount of any remuneration received or to be received by
the bank from the customer and the source and amount of any other
remuneration to be received by the bank in connection with the
transaction, unless remuneration is determined pursuant to a written
agreement between the bank and the customer, provided, however, in the
case of Government securities and municipal securities, this paragraph
(c)(2)(vi) shall apply only with respect to remuneration received by
the bank in an agency transaction;
(vii) The 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 it was sold, or the fact that such information
will be furnished within a reasonable time upon written request;
(viii) 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 on request;
(ix) In the case of a transaction in a debt security effected
exclusively on the basis of a dollar price:
(A) The dollar price at which the transaction was effected; and
[[Page 66763]]
(B) The yield to maturity calculated from the dollar price;
provided, however, that this paragraph (c)(2)(ix)(B) 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 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 to continuous prepayment;
(x) In the case of a transaction in a debt security effected on the
basis of yield:
(A) 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 the call price; and
(B) The dollar price calculated from the yield at which the
transaction was effected; and
(C) 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 (c)(2)(x)(C) 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 to continuous
prepayment;
(xi) 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, the estimated yield,
weighted average life, and the prepayment assumptions underlying yield)
will be furnished upon written request of the customer; and
(xii) 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.
(d) Notification by agreement; alternative forms and times of
notification. A State member bank may elect to use the following
alternative procedures if a transaction is effected for:
(1) 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
notification; provided, however, that such agreement makes clear the
customer's right to receive the written notification pursuant to
paragraph (c) of this section at no additional cost to the customer;
(2) Accounts (except collective investment funds) where the bank
exercises investment discretion in other than 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;
(3) Accounts, where the bank exercises investment discretion in an
agency capacity, in which instance:
(i) 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
(ii) If requested by the customer, the bank shall give or send to
each customer within a reasonable time the written notification
described in paragraph (c) of this section. The bank may charge a
reasonable fee for providing the information described in paragraph (c)
of this section;
(4) A collective investment fund, in which instance the bank shall
at least annually furnish 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;
(5) A periodic plan, in which instance the bank shall give or send
to the customer not less than every three months a written statement
showing the funds and securities in the custody or possession of the
bank, all service charges and commissions paid by the customer in
connection with the transaction, and all other debits and credits of
the customer's account involved in the transaction; provided that upon
the written request of the customer the bank shall furnish the
information described in paragraph (c) of this section, except that any
such information relating to remuneration paid in connection with the
transaction need not be provided to the customer when paid by a source
other than the customer. The bank may charge a reasonable fee for
providing the information described in paragraph (c) of this section.
(e) Securities trading policies and procedures. Every State member
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;
(ii) Execute transactions in securities for customers; or
(iii) Process orders for notification and/or settlement purposes,
or perform other back office functions with respect to securities
transactions effected for customers; provided that procedures
established under this paragraph (e)(1)(iii) should provide for
supervision and reporting lines that are separate from supervision of
personnel under paragraphs (e)(1)(i) and (e)(1)(ii) of this section;
(2) 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;
(3) 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; and
(4) That bank officers and employees who make investment
recommendations or decisions for the accounts of customers, who
participate in the determination of such recommendations or decisions,
or who, in connection with their duties, obtain information concerning
which securities are being purchased or sold or recommended for such
action, must report to the bank, within ten 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. Excluded from this requirement
are transactions for the benefit of the officer
[[Page 66764]]
or employee over which the officer or employee has no direct or
indirect influence or control, transactions in mutual fund shares, and
all transactions involving in the aggregate $10,000 or less during the
calendar quarter. For purposes of this paragraph (e)(4), the term
securities does not include government securities.
(f) 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.
(g) Exceptions. (1) De minimis Transactions. The requirements of
paragraphs (b)(2)(ii) through (b)(2)(iv) and paragraphs (e)(1) through
(e)(3) of this section shall not apply to banks having an average of
less than 200 securities transactions per year for customers over the
prior three calendar year period, exclusive of transactions in
government securities;
(2) Government Securities. The recordkeeping requirements of
paragraph (b) of this section shall not apply to banks effecting fewer
than 500 government securities brokerage transactions per year;
provided that this exception shall not apply to government securities
transactions by a state member bank that has filed a written notice, or
is required to file notice, with the Federal Reserve that it acts as a
government securities broker or a government securities dealer;
(3) Municipal Securities. The municipal securities activities of a
state member bank that are subject to regulations promulgated by the
Municipal Securities Rulemaking Board shall not be subject to the
requirements of this section; and
(4) Foreign Branches. The requirements of this section shall not
apply to the activities of foreign branches of a state member bank.
(h) Safe and sound operations. Every State member bank qualifying
for an exemption under paragraph (g) of this section that conducts
securities transactions for customers shall, to ensure safe and sound
operations, maintain effective systems of records and controls
regarding their customer securities transactions that clearly and
accurately reflect appropriate information and provide an adequate
basis for an audit of the information.
By order of the Board of Governors of the Federal Reserve
System, December, 19, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-31234 Filed 12-22-95; 8:45 am]
BILLING CODE 6210-01-P
