[Federal Register Volume 62, Number 233 (Thursday, December 4, 1997)]
[Rules and Regulations]
[Pages 64146-64148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31504]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 703
Investment and Deposit Activities
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule with request for comments.
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SUMMARY: On June 12, 1997, the NCUA Board issued comprehensive final
amendments to the NCUA Rules and Regulations on investment and deposit
activities. Two new provisions will result in a number of credit unions
having to significantly change the way they do business with broker-
dealers, which was not NCUA's intention. In addition, there are a few
minor errors in the regulatory language. This document revises the two
broker-dealer provisions to make them consistent with NCUA's intent and
corrects the minor errors.
[[Page 64147]]
DATES: The interim rule is effective January 1, 1998. Comments must be
received on or before February 2, 1998.
ADDRESSES: Comments should be directed to Becky Baker, Secretary of the
Board. Mail or hand-deliver comments to: National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax
comments to (703) 518-6319. E-mail comments to boardmail@ncua.gov.
Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: David M. Marquis, Director, Office of
Examination and Insurance, (703) 518-6360, or Daniel Gordon, Senior
Investment Officer, Office of Investment Services, (703) 518-6620, or
at the above address.
SUPPLEMENTARY INFORMATION: The comprehensive final rule amendments to
12 CFR part 703 were published on June 18, 1997 (62 FR 32989).
Broker-Dealers
Section 703.50(a) of the final rule requires that any broker-dealer
used by a federal credit union be either a federally regulated
depository institution or registered with the Securities and Exchange
Commission (SEC). NCUA particularly was concerned about credit unions
doing business with entities that sell only certificates of deposit
(CDs), as these entities are not subject to comprehensive regulatory
oversight. NCUA does not wish to force credit unions to stop doing
business with legitimate CD brokers, however, and has determined that a
credit union has sufficient control over the transaction when it
purchases a CD or share certificate directly from the issuing bank,
credit union, or other depository institution. Under the rule, as
amended by this document, a federal credit union can use a CD broker to
find an institution offering high rates, and may compensate the broker
for that service, but it must send the funds directly to the
institution and not through the broker or other third party.
Safekeeping
Section 703.60(c) provides that a federal credit union may not
allow a selling broker-dealer to safekeep its securities. NCUA's intent
was to ensure that the credit union was the beneficial owner of
securities it purchased. NCUA did not intend to change the way most
federal credit unions do business. NCUA believes that the regulations
and oversight of the SEC and depository institution regulators provide
adequate protection for credit unions and is amending the rule to
require only that safekeepers be entities regulated by such agencies.
Corrections
Section 703.80(a) of the final rule provides that before a federal
credit union purchases or sells a security, except for new issues it
purchases at par, it must obtain a price quotation on the security from
at least two broker-dealers or from an industry-recognized information
provider. NCUA added the requirement to ensure that federal credit
unions are aware of the market prices of securities they buy and sell.
The exception recognizes that the selling price of a new issue is, by
definition, the market price.
Although NCUA intended to exempt all new issues of securities from
the pricing requirement, new issues of some securities are sold at a
discount from their face value, not at par. NCUA is correcting this
oversight by adding that a federal credit union need not obtain two
prices, or a price from an industry-recognized information provider,
for a new issue of a security purchased at original issue discount.
NCUA also is correcting three other minor errors with this
document.
Interim Final Rule
The new amendments to Part 703 take effect January 1, 1998. If the
provisions discussed above are not revised before then, credit unions
will have to unnecessarily change the way they do business. NCUA has
determined that, in this case, the Administrative Procedure Act notice
and comment procedures are impracticable and contrary to the public
interest. 5 U.S.C. 553(b)(3)(B). Accordingly, NCUA is issuing this
document as an interim final rule, with an effective date of January 1,
1998. NCUA is requesting comments, however, to determine whether
further changes to the provisions are warranted.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any final regulation may
have on a substantial number of small credit unions, defined as those
having less than $1 million in assets. NCUA has determined and
certifies that the final rule will not have a significant economic
impact on a substantial number of small credit unions.
Paperwork Reduction Act
This interim final rule does not change the paperwork requirements
of Part 703.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. This interim final rule applies only to
federal credit unions, and as such, has no direct effect on states, on
the relationship between the states, or on the distribution of power
and responsibilities among the various levels of government.
List of Subjects in 12 CFR Part 703
Credit unions, Investments, Reporting and recordkeeping
requirements.
By the National Credit Union Administration Board on November
24, 1997.
Becky Baker,
Secretary of the Board.
Accordingly, NCUA amends 12 CFR part 703 as follows:
PART 703--INVESTMENT AND DEPOSIT ACTIVITIES
1. The authority citation for part 703 continues to read as
follows:
Authority: 12 U.S.C. 1757(7), 1757(8), 1757(15).
2. Amend Sec. 703.50 as follows:
Sec. 703.50 [Amended]
a. In paragraph (a), by removing ``You'' at the beginning of the
paragraph and adding the phrase ``Except as provided in paragraph (c)
of this section, you'' in its place; and
b. Add paragraph (c) to read as follows:
Sec. 703.50 What rules govern my dealings with entities I use to
purchase and sell investments (``broker-dealers'')?
* * * * *
(c) The requirements of paragraph (a) of this section do not apply
when you purchase a certificate of deposit or share certificate
directly from a bank, credit union, or other depository institution.
3. Amend Sec. 703.60 by revising paragraph (c) to read as follows:
Sec. 703.60 What rules govern my safekeeping of investments?
* * * * *
(c) Any safekeeper you use must be regulated and supervised by
either the Securities and Exchange Commission or a federal or state
depository institution regulatory agency.
* * * * *
Sec. 703.80 [Amended]
4. Amend Sec. 703.80 by adding the phrase ``or at original issue
discount'' after the word ``par'' and before the comma in paragraph (a)
introductory text.
[[Page 64148]]
Sec. 703.100 [Amended]
5. Amend Sec. 703.100 by adding the word ``security'' between the
words ``priority'' and ``interest'' in paragraph (k)(2).
Sec. 703.150 [Amended]
6. Amend Sec. 703.150 by adding the word ``investment'' in place of
the word ``security'' each time it appears in the definitions of
``Adjusted trading'' and ``Pair-off transaction.''
[FR Doc. 97-31504 Filed 12-3-97; 8:45 am]
BILLING CODE 7535-01-P
