9915Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations
1 1 See 12 CFR 208.8(k), 44 FR 43258 (July 24,
1979) (FRB regulation); 12 CFR part 12, 44 FR
43254 (July 24, 1979)(OCC regulation).
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 (g)(4), the
term securities does not include
government securities.
By order of the Board of Governors of the
Federal Reserve System, February 27, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97–5423 Filed 3–4–97; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 344
RIN 3064–AB74
Recordkeeping and Confirmation
Requirements for Securities
Transactions
AGENCY: Federal Deposit Insurance
Corporation.
ACTION: Final rule.
SUMMARY: The Federal Deposit
Insurance Corporation (FDIC) is
amending its regulations governing the
procedures for recordkeeping and
confirmation requirements with respect
to effecting securities transactions for
customers of an insured state
nonmember bank or a foreign bank
having an insured branch (Bank). The
final rule updates, clarifies and
streamlines the FDIC regulations and
reduces unnecessary regulatory costs
and other burdens. The final rule also
reorganizes and clarifies the regulation
in areas where it previously was
confusing. In addition, the FDIC has
incorporated significant interpretive
positions and updated 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: Effective date. The final rule is
effective April 1, 1997. Early
compliance. These revisions may be
followed immediately by the affected
party.
FOR FURTHER INFORMATION CONTACT:
Miguel D. Browne, Manager—Risk
Policy Development, (202) 898–6789;
Keith A. Ligon, Chief, Policy Unit, (202)
898–3618; and John F. Harvey, Review
Examiner (Trust), Securities, Capital
Markets and Trust Branch, Division of
Supervision (202) 898–6762; and Patrick
J. McCarty, Counsel, Regulations and
Legislation Section, Legal Division,
(202) 898–8708.
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. 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 1979.1
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 and streamline their regulations
to improve efficiency, reduce
unnecessary costs and 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.
On December 22, 1995, the OCC
published a notice of proposed
rulemaking (60 FR 66517) 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 OCC published its
final rule on December 2, 1996. See 61
FR 63958. 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. On
December 24, 1996, the FDIC published
a notice of proposed rulemaking (61 FR
67729) to amend part 344 to address
various market developments and
regulatory changes, and reduce
regulatory burden, where possible.
Consistent with Section 303 of CDRI,
the FDIC reviewed the OCC rule and the
FRB proposal in connection with the
preparation of its notice of proposed
rulemaking. The FDIC has endeavored
to create a rule that is uniform with the
other agencies. As part of that effort, the
staff of the FDIC has been in contact
with the staffs of the FRB and the OCC
in connection with the drafting of the
final rule. The FDIC’s final rule is closer
in structure, definitions, language and
form to the FRB’s proposal than the
OCC’s final rule, however, all of the
agencies’ rules are substantively very
similar.
Comments Received and Changes Made
The FDIC received six comments on
the proposal. One comment came from
a bank, one from a bank holding
company and four comments came from
trade associations representing banks,
investment companies and accountants.
In general, the commenters strongly
supported the proposal as promoting
uniformity among the Federal bank
regulatory agencies, reducing regulatory
burdens as well as addressing recent
developments in the securities market.
Most commenters specifically supported
the provision of the proposal that
excluded from the scope of part 344
customer transactions conducted
directly with a broker/dealer where the
customer has a written account
agreement with the broker-dealer and
the broker-dealer is fully disclosed to
the customer. This change would
exclude from part 344’s coverage
commonly utilized contractual
relationships between banks and broker/
dealers whereby the broker/dealers
conducts securities transactions on bank
premises, known as networking
arrangements.
In addition, certain of the commenters
requested specific changes to the
proposal. The FDIC has considered each
of the comments carefully and has made
a number of changes in response to the
comments received. Overall, the final
rule adopts most of the changes to part
344 as proposed by the FDIC although
certain changes have been made in an
attempt to increase uniformity with
regard to recordkeeping and
confirmation requirements among the
federal banking regulatory agencies. The
section-by-section discussion of this
preamble describes the final regulation
1 1 See 12 CFR 208.8(k), 44 FR 43258 (July 24,
1979) (FRB regulation); 12 CFR part 12, 44 FR
43254 (July 24, 1979)(OCC regulation).
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 (g)(4), the
term securities does not include
government securities.
By order of the Board of Governors of the
Federal Reserve System, February 27, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97–5423 Filed 3–4–97; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 344
RIN 3064–AB74
Recordkeeping and Confirmation
Requirements for Securities
Transactions
AGENCY: Federal Deposit Insurance
Corporation.
ACTION: Final rule.
SUMMARY: The Federal Deposit
Insurance Corporation (FDIC) is
amending its regulations governing the
procedures for recordkeeping and
confirmation requirements with respect
to effecting securities transactions for
customers of an insured state
nonmember bank or a foreign bank
having an insured branch (Bank). The
final rule updates, clarifies and
streamlines the FDIC regulations and
reduces unnecessary regulatory costs
and other burdens. The final rule also
reorganizes and clarifies the regulation
in areas where it previously was
confusing. In addition, the FDIC has
incorporated significant interpretive
positions and updated 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: Effective date. The final rule is
effective April 1, 1997. Early
compliance. These revisions may be
followed immediately by the affected
party.
FOR FURTHER INFORMATION CONTACT:
Miguel D. Browne, Manager—Risk
Policy Development, (202) 898–6789;
Keith A. Ligon, Chief, Policy Unit, (202)
898–3618; and John F. Harvey, Review
Examiner (Trust), Securities, Capital
Markets and Trust Branch, Division of
Supervision (202) 898–6762; and Patrick
J. McCarty, Counsel, Regulations and
Legislation Section, Legal Division,
(202) 898–8708.
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. 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 1979.1
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 and streamline their regulations
to improve efficiency, reduce
unnecessary costs and 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.
On December 22, 1995, the OCC
published a notice of proposed
rulemaking (60 FR 66517) 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 OCC published its
final rule on December 2, 1996. See 61
FR 63958. 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. On
December 24, 1996, the FDIC published
a notice of proposed rulemaking (61 FR
67729) to amend part 344 to address
various market developments and
regulatory changes, and reduce
regulatory burden, where possible.
Consistent with Section 303 of CDRI,
the FDIC reviewed the OCC rule and the
FRB proposal in connection with the
preparation of its notice of proposed
rulemaking. The FDIC has endeavored
to create a rule that is uniform with the
other agencies. As part of that effort, the
staff of the FDIC has been in contact
with the staffs of the FRB and the OCC
in connection with the drafting of the
final rule. The FDIC’s final rule is closer
in structure, definitions, language and
form to the FRB’s proposal than the
OCC’s final rule, however, all of the
agencies’ rules are substantively very
similar.
Comments Received and Changes Made
The FDIC received six comments on
the proposal. One comment came from
a bank, one from a bank holding
company and four comments came from
trade associations representing banks,
investment companies and accountants.
In general, the commenters strongly
supported the proposal as promoting
uniformity among the Federal bank
regulatory agencies, reducing regulatory
burdens as well as addressing recent
developments in the securities market.
Most commenters specifically supported
the provision of the proposal that
excluded from the scope of part 344
customer transactions conducted
directly with a broker/dealer where the
customer has a written account
agreement with the broker-dealer and
the broker-dealer is fully disclosed to
the customer. This change would
exclude from part 344’s coverage
commonly utilized contractual
relationships between banks and broker/
dealers whereby the broker/dealers
conducts securities transactions on bank
premises, known as networking
arrangements.
In addition, certain of the commenters
requested specific changes to the
proposal. The FDIC has considered each
of the comments carefully and has made
a number of changes in response to the
comments received. Overall, the final
rule adopts most of the changes to part
344 as proposed by the FDIC although
certain changes have been made in an
attempt to increase uniformity with
regard to recordkeeping and
confirmation requirements among the
federal banking regulatory agencies. The
section-by-section discussion of this
preamble describes the final regulation
9916 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations
2 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 believes it is not
appropriate to include sweep accounts in the
definition of periodic plans.
and identifies and discusses the
comments received and changes made
to certain sections of the proposal.
Section-by-Section Discussion
Purpose and Scope. (Section 344.1)
The purpose of part 344 is twofold: to
ensure that purchasers of securities from
Banks are provided with certain
necessary information about the
transaction; and to ensure that Banks
engaging in such transactions maintain
adequate records and controls with
respect to such transactions. In general,
part 344 applies to securities
transactions effected by Banks on behalf
of customers unless the transaction is
specifically exempted in § 344.2, such
as, to a limited extent, transactions in
government securities and transactions
in municipal securities conducted by
Banks that are not registered as
municipal securities dealers with the
SEC.
Exceptions. (Section 344.2)
The final rule provides five
exceptions from the requirements of
certain provisions of part 344. The
specific exceptions, which are
unchanged from the proposal, are: (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 first four
exceptions already exist in part 344. The
proposal added the exemption covering
certain securities transactions with a
broker/dealer. In order for the exception
to apply, the broker/dealer must be fully
disclosed to the customer and the
customer must have a direct contractual
agreement with the broker/dealer, that
is, a signed account agreement. This
exception makes clear that under the
circumstances described dual employee
arrangements are not subject to part 344.
This exemption is similar to that found
in the OCC’s rule. See 12 CFR
§ 12.1(c)(2)(v). The rule also clarifies
that even though certain 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.
In connection with the broker/dealer
networking exception, the FDIC
requested comment on whether part 344
should apply to banks which impose
surcharges or additional fees on
customers in addition to the transaction
volume compensation they normally
receive under a networking agreements.
The only comment received on this
issue indicated support for requiring
banks to disclose to customers that such
surcharges or additional fees were being
imposed. It is the FDIC’s understanding
that these type of surcharges and
additional fees are not common,
however, the FDIC expects banks to
disclose the imposition of these
surcharges or fees to customers and will
monitor this area to determine if further
supervisory action is necessary.
The FDIC received comment on the
small number of securities transactions
exceptions. This exception applies to
banks effecting an average of fewer than
200 securities transactions per year for
customers over the prior three calendar
year period and excepts the bank from
certain record maintenance
requirements as well as the need to
establish most required written policies
and procedures. One commenter
proposed that this limited transactions
exemption be expanded to allow a Bank
to effect 500 rather than 200
transactions in securities that are
neither municipal securities or
government securities. In light of the
FDIC’s desire for uniformity of its
recordkeeping and disclosure
requirements with those of the other
Federal banking regulators and the lack
of a compelling basis by the commenter
to make the suggested change, the FDIC
has determined to maintain the
exemption for limited transactions at an
average of 200 of such transactions per
year.
Definitions. (Section 344.3)
Section 344.3 sets forth the
definitions of 13 terms used in the rule.
The FDIC’s advance notice of proposed
rule making described six new
definitions—‘‘asset-backed security’’,
‘‘completion of the transaction’’,
‘‘crossing of buy and sell orders’’, ‘‘debt
security’’, ‘‘government security’’ and
‘‘municipal security.’’ The proposal
added two additional new definitions:
‘‘bank’’ and ‘‘cash management sweep
account’’. The proposed definitions are
the similar to those proposed by the
FRB. The OCC’s final rule also uses the
same terms, but the structure and
language used are somewhat different.
The final rule adopts the definitions as
set forth in the proposal with the
following minor modifications in
response to comments received
As proposed, 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 received two
comments on its proposed definition of
a ‘‘cash management sweep account’’
found at § 344.3(c). One commenter
expressed appreciation for the clarity
provided by having a separately defined
term; the other raised concern that
while the FDIC proposes to treat cash
management sweep accounts in a
manner identical to the OCC, an
additional definition may cause
uncertainty. The OCC defined a cash
management sweep account within its
definition of ‘‘periodic plan’’. For the
reasons stated in the proposed
rulemaking 2, the FDIC believes that
there are benefits to separately defining
the term ‘‘cash management sweep
account’’. Furthermore, we do not
foresee confusion resulting from the
distinction used in the OCC’s
regulation. With respect to cash
management sweep accounts, both the
OCC’s and the FDIC’s rules will require
monthly statements to be furnished to a
customer for each month in which a
security is purchased or sold, but not
less than quarterly.
The FDIC has amended the definition
of the term ‘‘security’’ at § 344.3(m) so
that it conforms to the definition used
by the other federal banking regulatory
agencies. The new definition more
closely tracks the definition of
‘‘security’’ in the Securities Exchange
Act of 1934. See 17 U.S.C. 78a et seq.
No substantive change in the definition
or meaning of the term ‘‘security’’ is
intended from the definition of the term
as published in the FDIC’s proposal and
the term as used in the existing
regulation. The FDIC is conforming
where possible the terms of part 344
with the rules of the other federal
banking regulatory agencies so that any
regulatory burden resulting from the use
of different terminology can be
minimized.
2 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 believes it is not
appropriate to include sweep accounts in the
definition of periodic plans.
and identifies and discusses the
comments received and changes made
to certain sections of the proposal.
Section-by-Section Discussion
Purpose and Scope. (Section 344.1)
The purpose of part 344 is twofold: to
ensure that purchasers of securities from
Banks are provided with certain
necessary information about the
transaction; and to ensure that Banks
engaging in such transactions maintain
adequate records and controls with
respect to such transactions. In general,
part 344 applies to securities
transactions effected by Banks on behalf
of customers unless the transaction is
specifically exempted in § 344.2, such
as, to a limited extent, transactions in
government securities and transactions
in municipal securities conducted by
Banks that are not registered as
municipal securities dealers with the
SEC.
Exceptions. (Section 344.2)
The final rule provides five
exceptions from the requirements of
certain provisions of part 344. The
specific exceptions, which are
unchanged from the proposal, are: (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 first four
exceptions already exist in part 344. The
proposal added the exemption covering
certain securities transactions with a
broker/dealer. In order for the exception
to apply, the broker/dealer must be fully
disclosed to the customer and the
customer must have a direct contractual
agreement with the broker/dealer, that
is, a signed account agreement. This
exception makes clear that under the
circumstances described dual employee
arrangements are not subject to part 344.
This exemption is similar to that found
in the OCC’s rule. See 12 CFR
§ 12.1(c)(2)(v). The rule also clarifies
that even though certain 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.
In connection with the broker/dealer
networking exception, the FDIC
requested comment on whether part 344
should apply to banks which impose
surcharges or additional fees on
customers in addition to the transaction
volume compensation they normally
receive under a networking agreements.
The only comment received on this
issue indicated support for requiring
banks to disclose to customers that such
surcharges or additional fees were being
imposed. It is the FDIC’s understanding
that these type of surcharges and
additional fees are not common,
however, the FDIC expects banks to
disclose the imposition of these
surcharges or fees to customers and will
monitor this area to determine if further
supervisory action is necessary.
The FDIC received comment on the
small number of securities transactions
exceptions. This exception applies to
banks effecting an average of fewer than
200 securities transactions per year for
customers over the prior three calendar
year period and excepts the bank from
certain record maintenance
requirements as well as the need to
establish most required written policies
and procedures. One commenter
proposed that this limited transactions
exemption be expanded to allow a Bank
to effect 500 rather than 200
transactions in securities that are
neither municipal securities or
government securities. In light of the
FDIC’s desire for uniformity of its
recordkeeping and disclosure
requirements with those of the other
Federal banking regulators and the lack
of a compelling basis by the commenter
to make the suggested change, the FDIC
has determined to maintain the
exemption for limited transactions at an
average of 200 of such transactions per
year.
Definitions. (Section 344.3)
Section 344.3 sets forth the
definitions of 13 terms used in the rule.
The FDIC’s advance notice of proposed
rule making described six new
definitions—‘‘asset-backed security’’,
‘‘completion of the transaction’’,
‘‘crossing of buy and sell orders’’, ‘‘debt
security’’, ‘‘government security’’ and
‘‘municipal security.’’ The proposal
added two additional new definitions:
‘‘bank’’ and ‘‘cash management sweep
account’’. The proposed definitions are
the similar to those proposed by the
FRB. The OCC’s final rule also uses the
same terms, but the structure and
language used are somewhat different.
The final rule adopts the definitions as
set forth in the proposal with the
following minor modifications in
response to comments received
As proposed, 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 received two
comments on its proposed definition of
a ‘‘cash management sweep account’’
found at § 344.3(c). One commenter
expressed appreciation for the clarity
provided by having a separately defined
term; the other raised concern that
while the FDIC proposes to treat cash
management sweep accounts in a
manner identical to the OCC, an
additional definition may cause
uncertainty. The OCC defined a cash
management sweep account within its
definition of ‘‘periodic plan’’. For the
reasons stated in the proposed
rulemaking 2, the FDIC believes that
there are benefits to separately defining
the term ‘‘cash management sweep
account’’. Furthermore, we do not
foresee confusion resulting from the
distinction used in the OCC’s
regulation. With respect to cash
management sweep accounts, both the
OCC’s and the FDIC’s rules will require
monthly statements to be furnished to a
customer for each month in which a
security is purchased or sold, but not
less than quarterly.
The FDIC has amended the definition
of the term ‘‘security’’ at § 344.3(m) so
that it conforms to the definition used
by the other federal banking regulatory
agencies. The new definition more
closely tracks the definition of
‘‘security’’ in the Securities Exchange
Act of 1934. See 17 U.S.C. 78a et seq.
No substantive change in the definition
or meaning of the term ‘‘security’’ is
intended from the definition of the term
as published in the FDIC’s proposal and
the term as used in the existing
regulation. The FDIC is conforming
where possible the terms of part 344
with the rules of the other federal
banking regulatory agencies so that any
regulatory burden resulting from the use
of different terminology can be
minimized.