[Federal Register Volume 62, Number 32 (Tuesday, February 18, 1997)]
[Rules and Regulations]
[Pages 7153-7155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3834]
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DEPARTMENT OF THE TREASURY
Office of the Under Secretary for Domestic Finance
17 CFR Part 404
Government Securities Act Regulations: Recordkeeping
AGENCY: Office of the Under Secretary for Domestic Finance, Treasury.
ACTION: Final Rule.
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SUMMARY: The Department of the Treasury (``Department'') is issuing in
final form an amendment to the recordkeeping rules in Sec. 404.4 of the
regulations issued under the Government Securities Act of 1986
(``GSA''). 17 CFR 404.4 of the GSA regulations requires financial
institutions that are government securities brokers or dealers to make
and preserve records. Specifically, the Department is amending
Sec. 404.4(a)(1) to clarify the applicability of the federal bank
regulatory agencies' rules, as adopted by the GSA rules, to financial
institutions and to conform with current recordkeeping rule revisions
being undertaken by the federal bank regulatory agencies.
EFFECTIVE DATE: This amendment is effective April 30, 1997.
FOR FURTHER INFORMATION CONTACT: Kerry Lanham or Kurt Eidemiller,
Government Securities Regulations Staff, Bureau of the Public Debt,
Department of the Treasury, at (202) 219-3632.
SUPPLEMENTARY INFORMATION:
I. Background
The Government Securities Act of 1986 (``GSA''), as amended 1
requires, among other things, that a financial institution that is a
government securities broker or dealer notify its appropriate
regulatory agency (``ARA'') of its status as such, thereby providing
for the regulation of its government securities business.2 In
1987, when the Department developed the GSA regulations affecting
financial institutions that are required to file notice as government
securities brokers or dealers (``bank broker-dealers''), it decided to
adopt the existing recordkeeping regulations of the federal bank
regulatory agencies.3 These rules are similar to the Securities
and Exchange Commission's recordkeeping requirements in Rule 17a-
3.4
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\1\ 15 U.S.C. 78o-5.
\2\ 15 U.S.C. 78o-5(a)(1)(B).
\3\ See 12 CFR Part 12 for national banks, which are regulated
by the Office of the Comptroller of the Currency (``OCC''); 12 CFR
Part 208 for state member banks of the Federal Reserve System, which
are regulated by the Board of Governors of the Federal Reserve
System (``Board''); and 12 CFR Part 344 for state banks that are not
members of the Federal Reserve System, which are regulated by the
Federal Deposit Insurance Corporation (``FDIC'').
\4\ 17 CFR 240.17a-3.
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The reason for relying on existing bank regulations was that those
financial institutions effecting government securities broker-dealer
transactions were already subject to a system of federal regulation and
supervision, which explicitly included recordkeeping requirements
relating to securities activities. Requiring those institutions to
follow another set of recordkeeping requirements was viewed as unduly
burdensome and did not promote the purposes of the GSA.5
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\5\ 52 FR 5675 (February 25, 1987).
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Section 404.4 of the GSA regulations provides that, for bank
broker-dealers, compliance with the recordkeeping rules of the bank
ARAs, together with additional GSA recordkeeping provisions,6
constitutes compliance with the GSA recordkeeping rules. However, the
respective ARAs' regulations provide for certain exemptions from, or
exceptions to, most of their recordkeeping rules based on a stated
transaction threshold. Specifically, the ARAs' regulations exempt banks
from most of the respective recordkeeping requirements if the bank
transacts a de minimis annual average number of transactions. The
regulations state, with minor variations, the following: ``The
requirements * * * 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 U.S.
government and federal agency obligations.'' 7 The ARAs have
interpreted this exemption as excluding government securities
transactions, meaning that government securities transactions are not
included in the
[[Page 7154]]
exempted, or de minimis, transaction count.
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\6\ In addition to complying with the recordkeeping rules of its
ARA, a bank broker-dealer is required to maintain, among other
things, records pertaining to securities positions (17 CFR
404.4(a)(3)(i)(A)).
\7\ See 12 CFR 12.7(a); 12 CFR 208.8(k)(6)(i); and 12 CFR
344.7(a).
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However, paragraph 404.4(a)(1) of the GSA regulations, in adopting
the bank ARAs' recordkeeping rules for bank broker-dealers, contains
the following provision: ``* * * provided however, that the records
required to be made and kept by those regulations shall be made or kept
without regard to the exemptions for transactions in U.S. government or
Federal agency obligations provided in 12 CFR 12.7(a), 12 CFR
208.8(k)(6)(i), and 12 CFR 344.7(a).'' Since implementing the GSA
regulations, the Department has consistently interpreted this provision
to mean that a bank broker-dealer's government securities transactions
are included in the 200 securities transaction exemption threshold that
is provided by the ARA rules. This provision was intended to permit
bank broker-dealers that conduct government securities transactions to
take advantage of the de minimis exemption from the ARAs' recordkeeping
rules that was available to them for their other securities business.
Accordingly, the GSA regulations allow a bank broker-dealer to conduct
up to 200 government securities transactions, or a combination of up to
200 government and other securities transactions, per year without
having to comply with most of the bank ARAs' recordkeeping rules. It
has been the Department's view that, for purposes of this part, a bank
broker-dealer falling within these parameters is exempt from paragraph
404.4(a)(1) of the GSA recordkeeping rules.
As a result of the cross-referencing, there has been some confusion
about the applicability of the ARAs' exemption threshold to bank
broker-dealers' government securities transactions. The
interrelationship between the recordkeeping language of the ARAs' rules
and the GSA regulations often has been confusing and ambiguous. The
ARAs and the Department are working together to eliminate this
ambiguity and to provide for a clear, understandable and consistent
interpretation of the rules.
The ARAs have proposed revisions to their recordkeeping rules that
would conflict, in part, with the GSA recordkeeping requirements as
they are presently stated in section 404.4(a).8 This amendment to
the GSA regulations will help to eliminate any ambiguity or confusion
resulting from the interplay of the respective regulations. This final
rule amendment is intended to be published within the same timeframe as
those final rules that are being adopted by the Board and the OCC.
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\8\ See 60 FR 66517 (December 22, 1995) for the OCC's proposed
revisions and 60 FR 66759 (December 26, 1995) for the Board's
proposed revisions. It is the Department's understanding that the
FDIC also intends to address this same rule modification to ensure
consistent application and interpretation of the rules. The FDIC
published an Advance Notice of Proposed Rulemaking on this subject
on May 24, 1996 (61 FR 26135).
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As stated by the OCC in the preamble section of their proposed rule
revisions, ``Consistent with the GSA regulations, proposed
Sec. 12.1(c)(2)(ii) exempts a national bank that conducts fewer than
500 government securities brokerage transactions per year from
complying with the recordkeeping requirements under proposed (and
current) Sec. 12.3 * * * This exemption does not apply to government
securities dealer transactions by national banks, however.'' 9
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\9\ 60 FR 66518 (December 22, 1995).
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The Board has proposed a similar rule revision. As stated in the
preamble section to its proposed rules, ``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.''
10
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\10\ 60 FR 66760 (December 26, 1995).
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In the rule proposals, both agencies also stated that they had been
advised by staff at the Bureau of the Public Debt, which is the
organization within the Department of the Treasury that is responsible
for administering the GSA regulations, that the staff was considering
amending the GSA recordkeeping rules. The purpose would be to clarify
any ambiguity with respect to the recordkeeping requirements for
financial institutions that conduct government securities transactions
resulting from the interplay of the GSA regulations with the ARA
recordkeeping requirements.
The final rules being adopted by the OCC and the Board, which are
virtually unchanged from the proposed rules, will increase the
exemption threshold to 500 government securities brokerage
transactions, which is consistent with the limited brokerage exemption
provided by the GSA regulations in Sec. 401.3 (17 CFR 401.3, Exemption
for financial institutions that are engaged in limited government
securities brokerage activities). The GSA limited brokerage exemption
provision basically states that a financial institution is not regarded
as acting as a government securities broker and is exempt from the
requirement to file notice as a government securities broker and from
most of the GSA regulations, including the recordkeeping requirements,
if it effects fewer than 500 government securities brokerage
transactions per year.11
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\11\ The GSA requirements of Part 450 (17 CFR Part 450)
concerning custodial holdings of government securities for customers
apply to all financial institutions.
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However, the OCC's and the Board's final rules contain additional
language that we view as contradictory to the intended applicability of
17 CFR 404.4(a) to bank dealers.12 The final rules state that the
de minimis exception does not apply to dealer transactions by national
banks (OCC) 13 or noticed financial institution government
securities brokers or dealers (Board).14 As a result, entities
engaging in government securities dealer transactions would be subject
to the bank ARA recordkeeping rules regardless of how many transactions
were conducted. As mentioned earlier, the Department views 17 CFR
404.4(a) as meaning that, for purposes of the GSA, bank broker-dealers
are not required to follow most of the ARAs' recordkeeping rules if
their annual government securities dealer transactions, or a
combination of their government and other securities transactions, are
less than 200. Given this difference in application of the GSA and
ARAs' rules, section 404.4 of the GSA regulations is being amended to
conform with the ARAs' rules and to make clear its intended
applicability.
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\12\ The OCC published its final rule on December 2, 1996. See
61 FR 63958 (December 2, 1996). The Board intends to publish its
final rule in January 1997.
\13\ 12 CFR 12.1(c)(2)(ii).
\14\ 12 CFR 208.24(g)(2).
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The Department is therefore amending paragraph 404.4(a)(1) of the
GSA regulations (17 CFR 404.4, Records to be made and preserved by
government securities brokers and dealers that are financial
institutions) with respect to bank broker-dealers that are subject to
bank regulatory agency recordkeeping rules by deleting the current
provision, ``provided however, that the records required to be made and
kept by those regulations shall be made or kept without regard to the
exemptions for transactions in U.S. government or Federal agency
obligations provided in 12 CFR 12.7(a), 12 CFR 208.8(k)(6)(i), and 12
CFR 344.7(a).'' As a result, in order to be in compliance with the GSA
recordkeeping rules at 17 CFR 404.4(a)(1), all bank
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broker-dealers will be required to follow the ARAs' recordkeeping rules
if even a single government securities dealer transaction is conducted.
II. Special Analyses
This final rule amendment does not meet the criteria for a
``significant regulatory action'' pursuant to Executive Order 12866.
The Administrative Procedure Act (``APA'') (5 U.S.C. 553) generally
requires that prior notice and opportunity for comment be afforded
before the adoption of rules by federal agencies. Inasmuch as this
final rule merely involves changes to conform with the rule revisions
currently being adopted by the federal banking regulatory agencies,
while not involving any substantive changes to the regulations, the
notice and comment provisions of the APA are unnecessary pursuant to 5
U.S.C. 553(b)(B).
As no notice and public comment are required for this rulemaking,
the provisions of the Regulatory Flexibility Act (5 U.S.C. 601, et.
seq.), do not apply.
The Paperwork Reduction Act (44 U.S.C. 3504(h)) requires that
collections of information be submitted to the Office of Management and
Budget for review and approval. Since this rule revision does not
include any new collection of information given the ARAs' current
interpretation and application of their recordkeeping requirements, the
Paperwork Reduction Act is inapplicable.
List of Subjects in 17 CFR Part 404
Banks, banking, Brokers, Government securities, Reporting and
recordkeeping requirements.
For the reasons set out in the preamble, 17 CFR Part 404 is amended
as follows:
PART 404--RECORDKEEPING AND PRESERVATION OF RECORDS
1. The authority citation for Part 404 continues to read as
follows:
Authority: 15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(2), (b)(4).
2. Section 404.4 is amended by revising paragraph (a)(1) to read as
follows:
Sec. 404.4 Records to be made and preserved by government securities
brokers and dealers that are financial institutions.
(a) * * *
(1) Is subject to 12 CFR part 12 (relating to national banks), 12
CFR part 208 (relating to state member banks of the Federal Reserve
System) or 12 CFR part 344 (relating to state banks that are not
members of the Federal Reserve System), or is a United States branch or
agency of a foreign bank and complies with 12 CFR part 12 (for
federally licensed branches and agencies of foreign banks) or 12 CFR
part 208 (for uninsured state-licensed branches and agencies of foreign
banks) or 12 CFR part 344 (for insured state licensed branches and
agencies of foreign banks);
* * * * *
Dated: January 16, 1997.
John D. Hawke, Jr.,
Under Secretary for Domestic Finance.
[FR Doc. 97-3834 Filed 2-14-97; 8:45 am]
BILLING CODE 4810-39-W
