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.
Proposed Rules Federal Register
67729
Vol. 61, No. 248
Tuesday, December 24, 1996
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).
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.
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:
COMMENTS@FDIC.GOV. 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).
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
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.
Proposed Rules Federal Register
67729
Vol. 61, No. 248
Tuesday, December 24, 1996
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).
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.
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:
COMMENTS@FDIC.GOV. 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).
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
67730 Federal Register / Vol. 61, No. 248 / Tuesday, December 24, 1996 / Proposed Rules
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).
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 (§ 344.1)
The notice of proposed rulemaking
makes some very minor language
changes to the ‘‘Purpose’’ part of § 344.1
to clarify which banks are subject to the
jurisdiction of the FDIC.
The ‘‘Scope’’ part of § 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 (§ 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 § 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.
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 (§ 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 § 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
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).
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 (§ 344.1)
The notice of proposed rulemaking
makes some very minor language
changes to the ‘‘Purpose’’ part of § 344.1
to clarify which banks are subject to the
jurisdiction of the FDIC.
The ‘‘Scope’’ part of § 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 (§ 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 § 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.
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 (§ 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 § 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